The performance of the housing market is "not consistent with an economy in the midst of the worst recession in 100 years" and a 'circuit breaker' is needed, Kiwibank economists say.
Commenting on the latest super-hot housing figures from the Real Estate Institute of New Zealand, Kiwibank senior economist Jeremy Couchman said double-digit price gains during the worst recession in 100 years, "just don’t pass the sniff test".
He said the Kiwibank economists were now no longer picking a correction in New Zealand's house prices for either this year or next.
He noted that credit growth among higher risk borrowers is accelerating.
"A circuit breaker is needed, and the [Reserve Bank] has delivered with the likely reinstatement of LVR restrictions. Although to be clear, the RBNZ is not focused on house prices, but heading off a surge in high-risk lending."
Couchman says the strength of the housing market, and the rate of credit growth, out of lockdown has "surprised everyone".
Numerous factors are behind the phenomenal rebound in the housing market post lockdown, he says, including record low mortgage rates, the removal of LVR restrictions, and the distinct lack of listed property.
"An earlier return of the macro-prudential speed limits [through the LVRs] is warranted."
The 'speed limits' will "come back into play" from March 1, Couchman says, but given how banks’ speed limits are measured, "the handbrake on new high LVR lending approvals and lending will start to be pulled much earlier than March".
"Banks generally give pre-approval for loans for 90 days. Knowing the restrictions are coming in March, banks may start tightening up in December/January. Tightening of LVRs will most likely fall hardest on investor-related lending. Since April lending growth to investors has shot up. Particularly to higher risk investors, defined as those with equity of less than 30%."
Couchman says while the RBNZ looks to have "turned the heat of the housing market down a notch or two with LVRs", he notes that the RBNZ has also added more monetary policy stimulus this week.
"At the November MPS the RBNZ made good on a promise to provide banks with cheaper funding with its Funding for Lending Programme (FLP). From December, the FLP will provide banks with a cheaper source of funding and enable banks to pass on lower lending rates to households and businesses.
"Lower lending rates will continue to underpin the housing market next year. Just less of the cheaper FLP funding will be directed to higher risk mortgage lending."