The affordability of New Zealand's houses is likely to be a key factor in controlling the country's house prices longer term, according to investment management firm Harbour Asset Management.
Harbour Asset Management's director, fixed interest, Christian Hawkesby said in a research paper that the Reserve Bank's new "speed limits" on high loan-to-value lending might help to cool the housing market in the short to medium term.
"[But] in the long-term, we believe that affordability will be a key factor restraining NZ house price inflation," he said.
The house price to disposable income ratio in New Zealand was "still elevated" at around 4.5 times.
"This is not only high by historic standards but the IMF, OECD and rating agencies all highlight that it is also high by international standards. Debt servicing costs in New Zealand have been eased by record low mortgage rates, but could start to bite in a rising interest rate environment," he said.
Hawkesby said that the introduction of LVR restrictions was "unchartered territory" for New Zealand.
"Our intelligence suggests that the initial response of banks has been to pull back significantly from high LVR lending," he said.
Part of this caution related to banks needing more time to come to grips with implementing and monitoring compliance to the new rules.
Until then, they had a strong aversion to being anywhere near their 10% limit, Hawkesby said.
"While data on new mortgage approvals is volatile on a weekly basis, approvals have trended down since the RBNZ announced its LVR restrictions.
"Surveys of housing confidence also suggest that sentiment in the housing market is becoming more cautious, especially in Auckland where a net 20% or respondents believe it is not a good time to buy.
Hawkesby said while household credit growth had picked up to around 5% per annum, it was still relatively modest compared to the mid 2000s when annual credit growth exceeded 15%.
"So it is hard to argue that 2013 has seen a 'credit fuelled' house price boom. However, the percentage of riskier high loan-to-value mortgages (over 80% LVR) has increased to around 30% of new lending, suggesting a growing exposure of some banks and mortgage borrowers to a housing market downturn".
Hawkesby believed the new LVR limits could introduce "some unusual dynamics".
"For example, aspiring high LVR borrowers with an existing pre-approval could rush to take out a mortgage before their pre-approval expires. Equally, banks could attempt to increase the growth of their low LVR lending (with increased total lending creating more headroom for high LVR within the 10% speed limit)."
Hawkesby said that in its September Monetary Policy Statement, the RBNZ forecast annual house price inflation to moderate to around 3.5% per year by 2015.
"Many private sector bank economists also have low forecasts of house price inflation, as they pick house prices to take a breather after a strong run.
"...In our view, mortgage approvals and housing sales should provide the best short-term leading indicator of the impact of the RBNZ’s LVR restrictions. In the long-term, we believe that affordability will be a key factor restraining NZ house price inflation."
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Our experience in high times is that people pay what they have/can get (what the bank says) in the fear of missing out. Servicing being the borrowers second order issue.
Presently we see bank attitudes (lending criteria / valuation) determing prices.
Our local leaders of the OZ banks must be thinking, "but why not we" when swapping war stories with their West Island mates
''My read is that the banks are being a little bit more aggressive. They want to grab a larger share but they are relatively conservative overall,'' Mr North said.
Some first-home buyers were borrowing ''well above'' 90 per cent of the property's value in response to fierce competition, he said. The same trend last week prompted ME Bank to raise its maximum LVR to 97 per cent, including the cost of mortgage insurance.
Read more: http://www.smh.com.au/business/home-buyers-borrowing-more-money-with-less-of-a-deposit-20131110-2xa5s.html#ixzz2kId7Cv1H Its not as if the subs of Oz banks can done no ill.
NATIONAL Australia Bank's troubled British division has been hit with another fine, after failing to properly inform customers about wrongly calculated repayments on more than 42,500 mortgages.
Britain's the Financial Conduct Authority overnight fined NAB's Clydesdale Bank 8.9 million pounds for the error, the latest hiccup in the troubled division that has dragged on the group for years.
- See more at: http://www.theaustralian.com.au/business/financial-services/uk-fines-na… http://news.smh.com.au/breaking-news-business/moodys-downgrades-nabs-uk…
Ratings agency Moody's has downgraded the credit rating of National Australia Bank's troubled UK subsidiary Clydesdale Bank.
Moody's downgraded the long term bank deposit and senior debt rating of Clydesdale to Baa2, from A2.
That means the loss-making bank is labelled a higher risk investment, going from upper-medium grade to a more speculative and moderate but still medium-grade credit risk.
Nice link mr Hulme. Particularly liked this comment:
The only new idea Yellen will come up with is a creative name for "Full Retard", which is how they are about to run the printing press
With the S&P500 now yielding under 2%, there can't be much more gas in the tank.
I rather like this one,
"In other words, we're not worried about whether the Fed is going to hit or release the gas pedal, we're worried about whether there's much gas left in the tank and what will happen if there isn't."
If there is little/no gas left (which from what I can read seems to be a consensus), then nothing prevents a Great(er) Depression occuring.
regards
I agree Steven.... but that could be a few yrs away.... and one needs to discern, ( for ones' own financial health ) ..whether the environment will be inflationary of deflationary...
Also... by "not much gas left in the tank"..... I think they were talking about the stimulus effect of new money entering the system... ie. new money generatiing asset price growth which leads to increased household spending...
My guess is that they will keep printing.... and printing... and even when inflationary pressures manifest ( CPI )... they will keep printing...
It is a messed up World when asset prices no longer reflect underlying economic conditions .... but are simply the result of massive excess liquidity
It is a messed up world where asset prices no longer price risk.
It is a messed up world when a Central Bank monetizes debt...
I think he means that the higher asset prices go ..and the lower yields are then the choice between holding cash or assets become much more "interchangeable".. ie.. it is easy to choose either option because the future gains on assets are risky and the yields are slim
People might choose to hold cash because the risk of holding assets are high and the probability of future gains are low.
Really nice link. Does that mean Steve Keen ideas about debt jubilees has merit? Or what about the Greens idea of printing money? The US Government could fund a big infrastructure spend with bonds purchased by the Reserve bank . Both of these would stimulate the economy in ways that QE doesn't.
Affordability is not an issue for the international buyers of property in NZ.
Unfortunately the percentage of international purchasers of properties is suppressed information.
You could knock out 30% of NZ domestic buyers and the property market will still steam-roll along on foreign money.
Try renting a house in Melbourne - it will be a Chinese landlord. Try renting a house/apartment in Sydney - international owner.
Yes. That is the "comfort by deception" of the use of the term "First Home Buyer". Many if not most off-shore purchasers fall into that category, yet the teeth-gnashers keep pandering to, and thus helping, the "first-home-buyer" crowd. Better terminology is needed.
In 2011 alone, more than £7 billion of offshore money flooded into potentially tax-exempt purchases of UK houses, flats and office blocks. Most buyers snapped up property in central London, helping to explain why prices there have defied the recession.
The majority used entities registered in the BVI. The BVI accounted for £3.8 billion of the total: a continuing steep rise from £2.7 billion in 2010 and £1.5 billion in 2009, according to Land Registry data. Smaller amounts came from similar entities registered in Jersey and the Isle of Man.
Reckless bank loans to offshore entities have fuelled much of the present property boom, handed over by lenders who subsequently had to be bailed out. British banks had $22.5 billion (£14.1 billion) outstanding in loans to BVI and associated offshore entities at the end of 2009, according to UK Treasury figures.
The UK government allows property buyers to hide their identities on the official Land Registry, which is becoming meaningless as a result. Every year, ever more houses are being listed there as owned anonymously offshore .
http://www.icij.org/offshore/secret-london-real-estate-speculators
Offshore investors are also being attracted by New Zealand’s relatively stable and corruption free investment and political environment, straight forward land title system, a lack of stamp duty and capital gains tax, and the high rental income returns that New Zealand property provides.
“Income yields on our commercial and industrial property have always been higher than in many other countries. An investor in Hong Kong, for example, can borrow in their home market at an interest rate of less than 3% and purchase good quality, higher value property here which is returning seven to 10%, so it makes this market very attractive for them,” he said.
“They also love coming down here – they see New Zealand as a safe haven both from a lifestyle and investment point of view.”
http://www.btob.co.nz/article/offshore-buyers-snap-prime-real-estate
BNZ-REINZ survey finds low percentage of foreign buyersAround 40% of Aucklanders are born overseas so the perception of foreign buyers is a lot higher than the reality, Finance Minister Bill English said today.
Many buyers or open home browsers pegged as "foreign" by casual real estate industry observers are in fact NZ residents, outside the scope of Labour's proposed policy.
.....................
That could be an advocacy poll?
Interesting jh.
Notice how the Govt, RE industry, QV, Banks all side-stepped the issue of quantifying exactly the percentage of houses (let alone commercial property) is being purchased by international buyers who do not have Permanent Residency.
Sure, Permanent Residents and recent migrants should be fully entitled to buy a home to live in or invest further. But non-residents, or temporary residents?
Pity you need to reference data available in the UK to make a point
It casts into stark contrast the type of data that is not available in New Zealand
The following is an example of the extraordinary lengths an investigative team from NZ Herald have gone to extract and collate and cross-reference fragmented data sets that are generally un-available to the wider community, and generally un-obtainable
This is the first of a 3 part series :-
More than 7.2 million property records were extracted from Land Information titles and owners' lists. These records were combined using cloud servers to create a searchable database of property records. Since the property titles data do not include addresses, a piece of custom software was created to identify and locate each property, while another extracted MPs' trusts, companies and declared properties from the Register of Pecuniary Interest. Combining all of these tools resulted in a map of properties owned by every MP, both personally and through trusts, superannuation schemes or companies. Every property found was manually verified against ratepayer records, which are separately held by 66 district and city councils.
the lengths nzherald went to in obtaining hidden data
Tune in for the next episode
Reason for govt inaction on housing bubble http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11155241
"[But] in the long-term, we believe that affordability will be a key factor restraining NZ house price inflation," he said."
Not in NZ when you have just about every tom, dick and harry thinking house price inflation and capital gain are two seperate things. They are NOT. One is directly connected to the other, hence we have a bubble that apparently makes us all winners.............except............when that bubble can't be inflated anymore with any new debt.
POP!
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