Westpac economists have trimmed their expectations of house price gains for the next two years slightly after the Reserve Bank's clamp-down on high loan to value lending.
In their weekly commentary the Westpac economists said the RBNZ's move last week to put "speed limits" on high LVR lending should produce a "sticker shock" effect and lead to a sharp, but temporary, drop-off in house sales and household credit growth in late 2013.
"However, beyond this short-term effect, we think that the long-term effect on the housing cycle will be limited.
"Bottom line, we still forecast house to rise over the next two years, with the LVR restrictions trimming 1.5 percentages points off our house price growth forecast over this period.
"For the record, our house price forecast now stands at 8.5% this year and 6.5% for 2014," the economists said.
According to the latest available Real Estate Institute figures - up to July - house price inflation nationally was 8.6% in the past 12 months. However, in Auckland the figure was 13.9%
The Westpac economists reiterated their view that the RBNZ’s speed limits will lead to a creation of two tiers of mortgage rate pricing.
"High-LVR lending (i.e. above 80%) is likely to be rationed via price, in the form of either higher interest rates or a higher low-equity premium. But those borrowers who can muster a deposit of 20% or more may enjoy lower mortgage rates than otherwise, as lenders are likely to compete harder for this limited pool of customers.
"Some buyers, including first-timers, are likely to be shut out of the market. As a result, home ownership rates will fall."
The economists said, however, that those who can provide a large enough deposit - a group that includes many investors - their willingness to pay will be unaffected by LVR restrictions.
"If anything, lower interest rates for low-LVR loans would leave them willing to pay more than otherwise. We suspect that, over time, house prices would be bid up to much the same levels, but at a marginally slower pace, as they would in the absence of LVR restrictions."
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