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New Reserve Bank figures confirm that the housing market had a raging finish to 2019 - and first home buyers were in there at record levels

New Reserve Bank figures confirm that the housing market had a raging finish to 2019 - and first home buyers were in there at record levels

Mortgage lending soared in December, with the amount borrowed up nearly $1.2 billion compared with the same month a year earlier.

And the first home buyers are continuing their march, moving to a new record high share of the amount borrowed, at 18.5%.

According to the Reserve Bank's latest residential mortgage lending by borrower type figures, the total amount advanced in mortgages last month was $6.536 billion, up from just $5.371 billion in December 2018.

The figures follow on from a similarly hot November, when nearly $6.8 billion was borrowed.

The FHBs borrowed just over $1.2 billion to give this grouping its highest share, at 18.5%, of the total amount advanced, since this data series was first published by RBNZ in August 2014. 

In numerical terms the amount borrowed by the FHBs was just shy of the record amount borrowed - which was in November - and was $1.243 billion.

It's not just all about the FHBs either, with investors now showing some signs of life, although this group's share of the monthly borrowing is sitting well below the 35% levels seen before the RBNZ clamped tough deposit rules on investors in 2016.

Investors borrowed just under $1.3 billion in December, which gave them a 19.9% share of the total advanced. That was slightly down on the 20.1% share this group took in November - but generally the percentage share of the investors has been creeping up in recent months, having been just 19% in August of 2019.

The year 2019 saw some conducive developments for the housing market.

In January 2019 the Reserve Bank's loan to value ratio (LVR) restrictions (first introduced in 2013) were loosened further, then later in the year the RBNZ cut interest rates, reducing the Official Cash Rate to just 1% from the 1.75% level the OCR had previously been at since November 2016.

This meant that loans were not only theoretically easier to get, but at lower, more serviceable, interest rates too. 

And there has been plenty of activity. Earlier this month Statistics New Zealand reported that residential building activity was running at levels not seen since the 1970s, while the Real Estate Institute of NZ monthly figures for December showed the housing market ending 2019 with a bang.

Economists have recently been upping the ante with predictions about the size of house price rises this year. Westpac economists had a longstanding prediction of house price inflation reaching 7% this year, which they are now saying may be reached earlier than they thought, while ANZ economists have recently reviewed their forecasts upwards and now see house price rises of 8% this year.

All this comes not so long after the Reserve Bank had been widely expected to further loosen its LVR restrictions. 

At one point the LVR restrictions featured a 'speed limit' of just 10% on new owner-occupier lending at LVRs above 80% of the value of the property. Tough deposit rules introduced in 2016 for investors saw them having to find 40% deposits.

In the past two years (January 2018 and January 2019) the limits were relaxed and are currently as follows:

Investor loans – 30% deposit / 5% of investor lending

LVR lending restrictions are tighter for investor loans due to the higher risks associated with this type of loan. The current policy classifies investor loans as high-LVR if they are more than 70% of the property’s value, and restricts high-LVR lending to no more than 5% of a bank’s total new investor lending.

Owner occupier loans – 20% deposit / 20% of owner occupier lending

This class of loan is for borrowing secured against owner occupied property. The current policy classifies owner occupier loans as high-LVR if they are more than 80% of the property’s value, and restricts high-LVR lending to no more than 20% of a bank’s total new owner-occupier lending.

As said earlier, the RBNZ had been widely tipped to signal further relaxation in the rules in its November 2019 Financial Stability Report, but instead said this:

"...Given the uncertainty around the future trend in housing lending risk, it would not be appropriate to ease LVR restrictions further at this point. We will continue to review LVR restrictions, and will adjust them in line with changes in the overall risk environment."

Clearly the RBNZ was alert to signs then - which have strengthened since - that the housing market is awakening in a serious way. 

Given the latest mortgage figures there would appear little chance of further relaxation of the LVR rules for now.

Indeed it may be the case as some are already suggesting that the RBNZ may look at tightening the rules again.

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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46 Comments

CoreLogic estimate on my home as at 26/1/20 was 100.4% of 2017 CV. Nothing spectacular but the highest in
a while. Where's Retired Poppy?

That is a fantastic return, we need the deposit for FHB reduced to 5% so they can get a foot on the property ladder. If everyone owned their own home in NZ we wouldn't need emergency housing, or dastardly landlords. We may even need 0% deposit loans for some people.

I wouldn't get too excited i brought my first home in Glenfield for 840K (60K under RV) in September last year. Corelogic now estimates its worth 931K..........yeah sure it is.

I'm sure Retired Poppy will be very impressed by margin of error from a 3-year old valuation.

To repeat from a another thread:

by Audaxes | 29th Jan 20, 10:44am
Thus it can be plainly seen today that the most important macroeconomic variable cannot be the price of money. Instead, it is its quantity. Is the quantity of money rationed by the demand or supply side? Asked differently, what is larger – the demand for money or its supply? Since money – and this includes bank money – is so useful, there is always some demand for it by someone. As a result, the short side is always the supply of money and credit. Banks ration credit even at the best of times in order to ensure that borrowers with sensible investment projects stay among the loan applicants – if rates are raised to equilibrate demand and supply, the resulting interest rate would be so high that only speculative projects would remain and banks’ loan portfolios would be too risky. Link-section II-3

Reply by Peri | 29th Jan 20, 1:29pm

Absolutely, if the leverage available on house equity (governed by LVR limits applied to existing home owners and investors) enables the creation of credit in quantities greater than the elasticity of supply of the housing market can absorb, then you have a positive feedback loop whereby house prices spiral up and away (until the unsustainable can by sustained no longer). At an elasticity of supply around 0.7, the LVR limit for those who use house equity must be limited to around 70% of house value if a spiral is to be avoided, and around 60% if the crowding out of FHBs is to be avoided.

debt is a bet that there will be resources available in the future, and energy to do stuff to them with. Extract them, process them, proffer them.

All in the future. Money is debt, and debt is that future expectation. Most folk get it wrong, seeing money as guaranteed proxy. All that upping of the 'valuation' of existing stuff - from art to houses - is just the beneficiaries of that upping, displacing others in being able to bid for future resources/energy. Nothing is changed, re depletion and availability; just who gets what part of the remaining cake.

There are currently $250 billion of future bets - by my reckoning, more bets than can be underwritten. So they won't be. So housing is a ponzi - when the music stops the readjustment will be massive. If it doesn't involve the system crashing totally. In which case, all bets will be off.....

' Most folk get it wrong, seeing money as guaranteed proxy. All that upping of the 'valuation' of existing stuff - from art to houses - is just the beneficiaries of that upping, displacing others in being able to bid for future resources/energy. Nothing is changed, re depletion and availability; just who gets what part of the remaining cake. " It's called the free market, everything could be seen as a Ponzi - money goes round, money is changing hands. Participate or loose out.

Not really, have heard of it at work but mostly as a sinister jokes. Every so called ponzi winner in the end always beg the overall tax payers funded expensive cancer drugs, that money changing hands eventually accumulated somewhere to give certain individual a big smile. They do participate, not loosing out - but that big won, mostly count nothing when we say, you only got X amount of time to live and unlike the ups/down of ponzi prediction, ours very scientific and 'deadly accurate'. How many professionals out there? really touting of such similar simple life principles.

The misspelling of the word lose is reaching epidemic proportions. I even saw it in an advert on interest.co the other day. Listen people, lose and loose have completely different meanings.

I regard the comment as barely literate if you make this mistake. For Keen Observer English is obviously a second language but, Shoreman, what is your excuse?

Lose the (grammar) hounds.

13
up

The RBNZ will be very pleased with themselves. We have inflation, tick. We have plenty of jobs, tick. Banks are lending more, tick. House prices are going up, gold star. They deserve a pay rise, more staff, promotion, an assured career path.

Something nags at me though. Is this sustainable? Is this real? Are we deluding ourselves that we are wealthy? Are we getting poorer in real terms? Is it not circular, whereby we create the money to employ ourselves building more houses for more people? Is it cyclical? Maybe it is all good and the quality of the housing stock is going up faster than the increase in prices?

RW - i was assured by a senior economist (a very senior economist) that we are trending to a ' service economy'. He probably believes that, but he will be well aware of the old story about the village taking in each other's washing in a vain attempt to get rich. That story is about a service economy - so we've proved right there that 'an economy' needs inputs. Those inputs are flows, from stocks (physical stocks, not the sharemarket kind). Are there enough stocks left to fund the collective repayment?

Easily observed in the provinces. The wondrous economic 'activity' is the building or infrastructure and houses to cater for the new popn bubble coming to these previous stable places.

So when they have built the roads and houses for the new arrivals, what will they do next? Drink coffee in the new 'vibrant' city center cafe and watch the watchers?

Congratulations to the many first home buyers that have gotten into the market.

I’m start to suspect I should actually try to get my late 20’s ass into buying a first home haha

Good on you. A very good idea in my opinion - even if you have to buy out-of-centre and/or rent the place out for the first few years.

I’d actually prefer to be out of Centre. Despite working in there.
Speaking of which, I’m open to any advice or opinion of anyone is willing to share?

Everyone's circumstances are different, but if I were a first home buyer I'd talk to a bank or mortgage broker to find out how much I can borrow using KiwiSaver and my savings. Would also apply for a first home grant. With that budget I'd buy the best stand-alone house with three bedrooms that I could afford, even if it is further out of center than I'd prefer and not that nice of a house. Preferably something with options to add value. I'd likely rent it out completely or get in two flatmates, that way the servicing is much easier and the bank will lend more if income is a constraint. I'd only buy in towns/cities with populations of 100K+, preferably 150K+. Would hold it for 5-10 years before using the equity to buy another or sell and upgrade to a place that I actually want to live in.

I bought my first home with my wife 3 years ago at 24 in Tauranga. Its a hard task but definitely worth it, you'll be poor to start with, but a few years down the track it gets much easier and soon its cheaper than rent.

My advice for saving is set a time period be it 3,4,5 years or whatever it is that suits you. And make it you goal to buy at the end. This means that your saving and sacrificing has an end date. Reduce your expenses as much as possible, board with family or flat if you can, all the usual stuff. Pay to your savings account as soon as you get paid and set automatic payments. Even if at the end of it you can only afford an apartment or unit, at least you can own you own house and get on the ladder.

Good Luck!

10
up

haw haw ..... sorted out my "shell" companies in the Cayman Islands and now back to see this wonderful headline ...jolly good I'd say, with the banks extracting even MORE wealth from the punters 'real' earnings ....haw haw ...my greatest joy is watching all that moolah coming to mine and my ilk's coffers, in the form of mortgage interest payments ....a damn fine business model using damp, mouldy and crappily built housing as security, that is totally overvalued ...haw haw ...my associates and I just get richer and you get the "picture" out your bathroom window, of leaky plasterboard and no eaves ! .....haw haw and a big thank you to NZ "mainstream" media for keeping the PPP rolling along, especially the NZ Herald .....keep up those "positive headlines" ....you are doing a damn fine job ! .....toodle pip for now, as off to dinner of roast duck a l'orange, washed down with a fine French Yvon Metras Fleurie Beaujolais ....jolly hockey sticks !

Percentage of FHB December 2017 with originating mortgage above 80 percent, 26 percent of total, 36 percent December 2018 and 40 percent December 2019. At same time both the median and average DTI ratio for a FHB has also increased . Pointless to say, if house prices are increasing, the mortgage size is increasing and new bank lending will also be increasing ,and banks will continue to make hay. This allows existing homeowners to utilise the home bank or pyramid scheme for those important things in life.

I am going to assume from your name that you either have very low self esteem, or are an evil dairy farmer. Banks don't make any hay when house prices go up, it's the joe average home owner who makes all the money. If you had stayed away from cows and gone to university or worked in a factory, you would know this already.

This is assuming Capital is not borrowed for "Europe trip with kids " everyone's doing it ya know. Or "pool for kids" we want them to have all their friends here so we can keep an eye on them. or beach Bach for summer holidays.... Oh I could go on... The banks always win, size matters, and in my experience there is a lot of d#ck swinging going on at the summer BBQ with "friends" pretty sure most of them aren't 250k plus earners.

Didn't you start out in Dairy Farming?

Hmm, and here i thought bank profit was largely determined by: amount lent out x interest margin.
So more money lent out = more profit
And more money lent out to FHBs with low equity who are paying higher interest rates = more profit.

I don't think you have any real understanding of banking.

When prices go up, total amount of borrowing goes up. More borrowing = more profit for banks. As values of existing homes goes up, and a home owners equity goes up, so the capital that needs to be held against the mortgage decreases. More profit. Banks are also less likely to suffer losses on defaults/mortgagee sales. More profit.

Yes, FHB taking more risk to equity and getting less land for it, each year.

A key question: does increase in borrowing equal the increase in price nationally, in terms of total paid for house purchases?
If so it is not an increase in propensity to borrow
Secondly ( and v tediously) no breakdown for Auckland v rest.

Mikekirk , RBNZ C30 will breakdown "new" lending Auckland ex Auckland. December 2016, Auckland accounted for 51 percent of total lending, 2017 48 percent, thru December 2019 44 percent.

Thanks for that. Must look more carefully next time!

Further to my earlier query:

Total cost of property sales Dec 17 - 19: 14% up
Median price paid for these sales also rose 14.76%

However, total mortgages advanced comparing Dec 2017 to 2019 rose 28.36%
Dec 2018 v 2019 it rose 21.7%, compared to total sales (paid) amount rose 27.7%

Comparing Dec 17 to Dec 19, FHB borrowing rose 57%. Investors rose 22% and OO rose 24%
But median sales price rose only 14%

Where has all that extra borrowing gone?

Have to bear in mind that December 18 was a bad month for sales.
It fell between OBB and AML law intro.
Have to make sure when comparing that we state what conditions were at time (now and then)

NZ total sales rose only 2.7% from Dec 17 to Dec 19
Auckland sales rose 5.4%

2017-19 lending rose 28% and sales only rose 2.7%
So, it appears to me that huge proportion of reason for increase in lending is simply rise in price.

In Auckland City Dec 17 sales were 605 and in Dec 2019 were 541. Not spectacular (- 10%)
That was not reported of course. rather the 2018-19 rise was (+ 21.8%)

Crucial to describe the conditions applicable at time.
Auckland conditions in the 4 months running up to Oct 22nd 2018 were not normal because people were selling and buying ahead of the ban. Then, there was a predictable droop in sales for months after 22.10.18, due to people already having executed their sales/purchases.
So, comparisons of sales for Auckland especially show the first 9 months of 2019 as lower or flat cf 2018 and improving after.
And, consequently, as Dec-March sales in 2017-18 were so dire, then the sales for Dec 2018 to March 2019 will look much better.
12m ruling series is better guide.
Total sales in NZ in 2019 were lower than in 2018
Same for Auckland.
Despite all massive rise in sales in Auckland in December 2019 (in fact BECAUSE of it) January sales will not rise any where near as much in % terms, by comparison to January 2018, despite the latter month being so low.
Auckland sales in Dec 2017 were 1765 and in Dec 19 were 1860
For NZ the figures were: 6117 v 6285
Given that pop and stock are rising, this is not that impressive.

It would also be nice if RBNZ and others would start quoting REAL rises, after inflation is deducted.
In addition, what has been happening in last 4 years is the buyer gets less land for same price.
It is land price inflation that should be reported, per m squared

Umm, auction sales for Auckland really seem to have slowed down to a crawl. So far according to this website only 14 successful auction results for AKL this months so far, that's pretty poor in comparison to even a few years before.

I get 17 sold out of 28 that went up for/were scheduled for auction in 2020 for Auckland. 60% success rate, but not many going up for Auction yet.

FHB would get 87m square in Papakura for a RE NZ townhouse advertised yesterday.
For $539,000.
Per square metre that is $6,200

This is what some readers regard as a good rung on property ladder.
It is extortion

Presumably there is some land?

Yes: 87 m square of it!
House size is 72m

ug, that sounds horrible.

Reduce effective interest rates to their lowest in decades, leave other credit-control settings as is, then gape in wonderment as Borrowing goes through the roof and hard asset values continue their relentless climb to Buzz Lightyear territory. Isn't this exactly what ECON101 would have predicted?

If RBNZ relaxes the LVR rules for owner-occupier, will banks also reduce the limit for imposing low-equity premiums or mortgage indemnity insurance?

No, no reason they would. Two seperate issues. Low equity means greater chance bank can't recover the full mortgage amount if you stop paying the mortgage, thats why they charge a LEF or insure against it.

So you're more likely to be able to get a lower equity mortgage, but the bank will still add 1% or so to cover the increased risk? That does seem to benefit FHB's that have had difficulty scraping together the deposit but are perfectly capable of servicing the debt.

Nope, the banks aren't anywhere near the current LVR speedlimits, so why would changing them make a difference?

So it's not the RBNZ restriction for High-LVR that has banks saying "we won't give you a mortgage without 20% deposit", it's just the banks making that decision?

First home buyers are exempt and routinely obtain 95% financing.

Banks will lend with less than 20% deposit, they'll just charge you more. If you have the income to support it you'll get a mortgage.

And Laminar is not quite correct.. Not all FHB aret exempt from inclusion in the banks LVR calc.. but they might be if they buy a new build, or get a welcome home loan, etc. Either way, its still the banks decision to lend to you, and less than 20% deposit will cost you one way or another.

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