The new 40% deposit rules for investors have clearly had an impact - but the jury is very much out on how long the impact lasts for

By David Hargreaves

The latest monthly sales figures from the Real Estate Institute will have been a source of some quiet satisfaction, tinged with relief, for the folk at the Reserve Bank.

The October REINZ figures give a snapshot (and the most timely one among the various sales figures available) of New Zealand's housing market in the first month since the new 40% deposit rules for investors officially kicked in - though the rules were unofficially applied 'in spirit' by the banks straight after being announced by the RBNZ on July 19.

The rises in median values that were seen in some areas in the latest month are a red herring and as much as anything merely demonstrate a change in the mix of houses being sold.

In general terms, if the housing market is easing off the sales volumes will dry up first and then this will later be followed by an easing of price pressure.

The telling thing to look at in the latest figures is the top and mid-to-bottom of the market sales figures.

Nationwide there were 2726 houses sold in the $600,000 and over bracket in October, compared with 2621 in the same month a year ago - that's a 4% increase in the latest month versus the same month in 2015.

In the under $600,000 bracket, there were 4001 houses sold, down some 23.3% on the 5217 sold for under $600,000 a year ago.

Now, yes, you do have to be a bit careful with those figures, in the sense that obviously with rising house prices over the course of the year, then so the number of houses in the upper price bracket would tend to rise.

Clearly, however, this 'bracket creep' would not come close to explaining a fall of as much as 23.3% in the lower end houses.

The Reserve Bank these days compiles detailed statistics every month on the categories of mortgage borrower, be they first home buyers, other owner-occupiers, or investors.

The figures for October are not out yet, but the September figures showed a marked fall off in both the amounts of money borrowed in total by investors and by the number of investors borrowing.

Conversely the numbers of first home buyers and owner-occupiers pretty much held up.

If we say that the first home buyer figures are about where they were, and we presume that most first home buyers are at the lower end of the market, then this all suggests that the fall-off in sales the mid-to-lower price bracket is being driven by a slackening of investor buying - exactly what the RBNZ would hope to see with the 40% deposit limit.

The big, big question though is whether that impact will be a long-lasting one.

The RBNZ has expressed great caution since imposing these latest limits. Indeed its public positioning on the matter has tended, I think, to suggest a lack of confidence that the measures will have a lasting impact.

The other thing though (and which might explain the reluctance to claim success on the 40% deposit measure) is that the central bank is currently involved in what might be termed a marketing campaign to try to sell the Government on the idea of debt-to-income ratios. At this stage the Government doesn't seem to be buying, which could be hugely problematic for the RBNZ if house prices start to gain momentum again early next year - and my bet is that they will.

For now though we do appear to have a pre-Christmas pause in the housing market.

The next key factor will be whether Christmas is good for the RBNZ - and they get a present of nice shiny new DTIs to slip into the macro-prudential tool kit. I still doubt it.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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28 Comments

I have no doubt that the new LVR rules have had an impact, but if you visit any property"investors" blog / forum or website you will see multiple comments from "investors" telling of all banks tightening up their lending criteria hugely - often mid-negotiation with customers to their displeasure.....

This has happened irrespective of what the RBNZ is doing - which to this point has been too little too late.

In essence credit has tightened big time.

So is the lolly scramble on property with cheap and easy money over? Guess time will tell.

Manawatu sales up 20 odd %.. while auckland sales down by similar amount.

Is this a result of the 40% LVR?

Money going to one of the cheaper regions as borrowings limited to lower amounts.

May see some grumpy locals in Palmy etc as equity rich aucklanders outbid them. Although theyve had plenty of warning and time to get on the property ladder there.

Yep - and the foreigners are doing it to Aucklanders. It is definitely a problem and needs to be addressed.

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Who are the best people to answer the question about foreign buyers are the real estate agents and check with them off the record and will get the clear picture or should check with people who are in market to buy and attend the auction and will get clear and I think though the government has manipulated and suppressed the real overseas buyer data - each and everyone know what is happening and who are responsible.

Agents have told me the foreign buyers have gone, and I've seen this for myself at Central Auckland open homes. Sales volumes have been in decline since June when the banks stopped lending to foreign buyers relying on overseas income.

Good news, if it happens.

This also goes on to prove that foreign buyers were(If not are) active in Auckland which the national government is in denial.

Question is why the denial from national government to a fact which is known to one and also Australia has admitted, so has Canada so what reason compels government to lie to the people who voted them. How can they feel that they will and can get away with such a lie...is amazing.

May be possible earlier but in today's time with internet, social media, telecommunication and all it is hard to suppress the reality - the earlier government understand the better it is for them to avoid what happened in UK and USA.

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A week ago I would have said kiwis are not marchers, and not protesters

However

The sympathy protests in Auckland and Wellington this week in sympathy with Americans protesting against Trump makes me wonder what we are all about

We remain silent about the take-over of Auckland and its supporting infrastructure and services but people will come out and protest about Trump? Really?

Are Barfoot and Thompson still publishing their annual hit-parade of top 25 sales agents

or have they suppressed it

While equity rich Aucklanders may be buying houses - is it a wise move - has anything fundamental changed in the market i.e. have wages risen.

4% mortgages vs. 9% 10 years ago. = half price mortgage payments, or an effective doubling of wage in relative terms.

So no - you are relying on low interest rates in an environment where interest rates are currently rising and the US has elected an unpredictable President (Clinton would have been more predictable in that respect). People have borrowed so much - a minor increase in interest rates could put them under financial stress.

Correct. Everyone globally has borrowed a ton including the states. Correct a tiny rise will cause big financial stress to everyone with all this debt. So what do you think is going to happen (or not happen to be more to the point)?

New neutral interest rates are dropping all the time. The Fed was meant to move rates up 4 times this year. So far zero moves. Tightening these days involves merely talking about rate moves.

Mr Market simply doesn't care - you assume that interest rates can't rise simply because you believe it could cause financial stress - that is either naive or foolish or both. I believe the likelihood of a rate increase in the US is now sitting at 90%. Over recent days there has been over $1 trillion in bond losses - the market simply doesn't care.

But if prices have doubled in 10 years (a commonly referred to stat on here) and the "cost" of a mortgage has approx. halved is this actually a fools bargain given that mortgage lengths have tended to rise?

If LVR has slowed down the housing market , like last time and have a fear that is just for short time than is it not the right time to introduce DTI as comprehensive approach is the right thing to do to have a solution to housing crisis.

When it comes to protecting speculators and foreign buyer, national government with their policies are one step ahead and when it comes to helping the average kiwi or protecting FHB from being extinct are not one but several steps behind (By not acting is also another way of helping then whom the government interest is).

It is this attitude of the politicians all over the world and also of many media experts that people have disconnect and the world is changing.

Next year election in NZ will be very interesting.

The horse as already bolted on house prices, which is really what the problem is. The big problem is that the prices are now so high. People expect that prices will never drop, and if they do drop, then that is a disaster. From other areas of NZ since the GFC, house prices have stayed mainly static, and over time and inflation eroded their value.
You just need cheap credit to dry up and interest rates to go up to 8 (which is historically low anyway) for people who have purchased their million dollar shed, to feel the pain. The earthquakes are probably a bit of a turnover for buyers between Wellington and Christchurch, and what they would be prepared to pay. People hate earthquakes.

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Have you heard of price resistance ?

I have enough for a 40% deposit for a house as an investment in Auckland BUT I refuse to risk my money at these over-the -top prices .

Its called price resistance , when a buyer perceives a price to be beyond what is reasonable , they will sit on their hands and do nothing .

Auckland , in my view has got to a point of price resistance , the 40 % deposit is just adding to the mix

x 2 boatman - I'm looking for a new house and have the funds in place - but there's no way I'm spending a dime right now and with no pressing need to move at the moment I'll be holding out.

With the current mood on North Shore housing in Auckland and already seeing discounts and signs of motivated vendors...plus more and more fixed prices weekly.

I'll hold on and screw every last dime out of those who have profiteered and speculated loose and fast in the last years.......what goes round comes around...

Another possibility is that people will stay put and update / renovate their existing home - apparently this is happening in Sydney.

I think experienced property investors left the Auckland market 10 or 20% ago. Mum and dad investors jumping in at the end of the boom are the cannon fodder of the coming recession. It happened 2008 - 2009, it feels like where nearly there again. Lets check histories property clock, since WW2 every 8 to 10 years property boom is followed by recession. Bang on time.

So if LVRs are impacting prices then it would seem the reason the prices skyrocketed over the last few years was borrowers, local and offshore, accessing cheap money and falling over each other to buy property.

I think there is a large grain of truth in that - as the market is cooling the only thing that was keeping the price up was the next fool. As the next fool has been sidelined by LVR - demand and upward pressure on price is suppressed (if it ever really existed in the first place or was it just FOMO).

Did you gold too ...at the top of the inverted heap.

Is this the warning signal finally burning through the fog of tax free capital gain blindness, "pull up... pull up...."

Funding issues hit St James apartments project in Auckland

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1174...

I find funding someone Else's projects a little irrational in this day of little returns.

Especially when they want...more and more.

More so than ever?.

No Saints in my portfolio.....better the devil you know, than one you do not.

(Funny how people like a fancy name and fancy people fronting their syndicates)

Might as well enjoy the money yourself, as sometimes, when big stakes gambling on uncertainties is counter productive.

Spread the risk......do not get your fingers burnt.

I used to be able to count on getting my money back, plus a modicum of returns.

Now I can count on my fingers, how many times I came near to losing out..in fact , I am running out of fingers.....

Since the 87 Finance Company rort, the 97 crash, the 2007/8 GFC, there is a 10yearly pattern emerging......I call it fraud-u-lent.....and it is once bitten twice, thrice, etc...shy.

There is even a web site.....dedicated to the NZ side of the equation.

I will point all overseas investors to it.

http://www.teara.govt.nz/en/business-failures-and-corporate-fraud/page-4

Maybe our overseas lenders have cottoned on....we are not as clean and nor as Green rorting people, as some would like to think.

Worth a read. Free as a bird, no ulterior motive....I do not need your thanks, or your money......but all donations......please send to the NZ Red Cross.

I dunno. A lot of people here don't like diversifying asset classes and like their one way bets in the comments on this site. Don't worry the property market isn't a market the price won't drop by x%, etc.

I find what's happening fascinating but it'll also be damaging for everyone. Hopefully the number of people losing their shirts is minimal.

Free money is scarce these days, only a few grasp that. There is always a cost, to some one. Even banks who fiddle it, have to carry a certain amount.
We are seen as a safe haven...for overseas money, Capital Gains and all. That is why the move to safer shores. even if a little shaky of late.

So let us just be thankful, we do not live in these countries...or a lot more I could name and shame.

These are not actually the worst culprits, you might be surprised about that.

http://www.ozy.com/wildcard/the-worlds-worst-6-little-known-dictators-wr...