By David Hargreaves
Auckland's largest real estate firm Barfoot & Thompson reported a big bounce in sales volumes and prices in March. The latest QV figures, while on the face of it portraying a flat Auckland market based on what's happened in the past three months, actually gave indications of a more recent upsurge again.
QV National Spokesperson Andrea Rush said over the past few weeks activity and demand had begun to pick up again across Auckland "and values have actually risen again over the past month by 0.6%, so it appears the downward trend may be coming to an end".
The other figure I think was hugely significant in that QV release came from property information, analytics and services provider, CoreLogic - and this was the figure that said 'multiple property owners', so, effectively investors, were currently accounting for 44% of Auckland house sales. This figure did dip to around 40% toward the end of last year but is now well and truly back up and running at the high levels seen previously.
The RBNZ's own monthly figures showing the various categories of property buyers taking up mortgages (although these are national figures) have shown a similar recent strong uptick again from investors after a retreat late last year.
Since both the new tax measures and the RBNZ moves were announced last May there has been the additional development in the housing market of renewed buying interest and rising prices in the regions.
The Real Estate Institutes figures for March will be out next week. Those will be the ones that the Reserve Bank will really be watching closely - it has said as much. Based on the Barfoots figures (and bearing in mind Barfoots normally have around 40-45% of the Auckland market) then it's a reasonable assumption that the REINZ figures will also signal the end of what has been the briefest of pauses in the Auckland market's upswing. And it would be expected that we will also see a continuation of increasing heat in certainly some of the regions.
All of which is vexing and perplexing for an RBNZ that's also under pressure to further reduce interest rates in the face of continued low inflation and a too-strong New Zealand dollar. Faced with strong house price rises, the RBNZ's inclination would be of course to raise rates rather than pouring more petrol on the fire with another reduction - but another reduction there will be, possibly as soon as the next rates decision on April 28. Much will depend on the inflation figures to be released on April 18. If those show some flutterings of inflation then the central bank will be able to sit tight for the time being.
But the inevitable questions over the next few months will centre around what the RBNZ will intend to do, both about the re-emergence of pricing pressures in Auckland and about the gradual spreading of Auckland's heat elsewhere.
On that last point it is interesting to note that there is hard evidence that at least some of the interest in other regions is being partially fuelled by Auckland investors, as recent work by CoreLogic has shown.
The multi-billion dollar housing market question of course is where exactly can the RBNZ go from here? Clearly it can dip into its 'macro-prudential toolkit' again - and perhaps we may see new tools added this year.
Would the RBNZ consider an even higher deposit requirement for Auckland investors than the 30% that has applied since November? Would it consider extending that 30% ratio to the rest of the country? Or is it going to look at making the banks hold more of their own capital against their mortgage portfolios. Or will it look at debt-to-income ratios?
I think the REINZ figures out next week will give the official green light, wake-up call, or whatever you want to call it, for the RBNZ to look at its next steps. I would imagine we'll have something announced before the middle of the year - perhaps again in conjunction (as last year) with May's Budget.
But the interesting additional point to consider is how much more will the RBNZ consider it needs to do to rein in the housing market.
Here we get to the interesting argument of what is the RBNZ's actual role in the housing market?
What the central bank most certainly is NOT is some sort of watchdog looking to ensure an egalitarian market in which house buyers are protected from downturns. And it's worth remembering that. The RBNZ is not there to protect the house buyer from themselves, if the buyer's made a bad individual decision.
No. The RBNZ's role in this is to preserve financial stability. If the house market is galloping upwards in a way that suggests a big correction is possible - and that this correction may then have a bad impact on the banks (and that is the key point) - then it will take action to dampen the market.
This is the important distinction to make. The RBNZ's effectively wanting to prevent damage to the banks, which would damage the operation of the financial system.
What shouldn't be forgotten is that the RBNZ has already done things that will be giving it more comfort than it probably felt three years ago - take for example the impact of introduction of the 'speed limit' on the amount of high loan to value lending banks could undertake.
In last November's Financial Stability Report the RBNZ noted the share of bank mortgage debt with an LVR of more than 80% has fallen to 14% from 21%, "increasing the resilience of bank mortgage portfolios".
In the same vein, no doubt the moves to get Auckland investors on LVRs of less than 70% will also be giving our central bank more comfort.
So, as the house market goes up, up and up again, how much more will the RBNZ feel inclined to do? How much will it feel it needs to do?