The impact on house prices of limits on high loan-to-value lending is likely to be at the low end of the Reserve Bank's estimates, according to ASB economists.
ASB chief economist Nick Tuffley, along with economists Christina Leung and Daniel Smith, prepared a special "Economic Update" giving an "initial assessment" of the effects of the LVR restrictions, put in place by the RBNZ as of October 1, 2013.
The economists noted that the RBNZ had estimated its LVR 'speed limits' would likely reduce house price growth by 1-4 percentage points and housing credit growth by 1-3 percentage points.
"The muted response to date of the housing market and credit growth suggests the impact is more likely to be at the lower end of the RBNZ's estimates," the economists said.
"Other factors such as rising interest rates and increased building will remain the dominant drivers of the housing market."
The economists said their initial assessment of the impact of the high-LVR restrictions suggested the restrictions would have had "some success" in reducing damage to the financial system in the event of a housing downturn "but haven’t materially reduced the probability of a house price overshoot that leaves the housing market vulnerable to a sharp downward correction".
Tuffley, Leung and Smith said that housing demand had eased in recent months, but the impact on house prices had been muted.
Nonetheless, they said, there had been "a noticeable shift" in new lending patterns, with the sharp decline in high-LVR lending largely offset by an increase in lending to households with at least 20% deposit.
"Given the RBNZ had highlighted the risk high-LVR lending posed to banks’ balance sheets in the event of a housing downturn, this change in the composition of new lending suggests the RBNZ will conclude some success in improving financial stability."
The economists said that while there had been some volatility in the market, as usual, over the holiday period, "the overall sense is that the market is cooling a little".
"The REINZ stratified house price index (taking a three-month average to look through volatility) suggests that price growth peaked at around 17% p.a. in Auckland in around August last year – prior to the announcement and implementation of the LVR restrictions. Since then the annual rate of appreciation has eased to around 13%.
"Price growth at the national level looks to have peaked at around the same time, at around 10%. And once we seasonally adjust the index, January was the first month since April 2012 in which prices decreased at the national level – the index was down 0.3% from December."
They said indicators such as the number of days taken to sell houses - now increasing - suggested that a "gradual moderation" in price growth would continue. They said increased building activity would start to alleviate some of the supply pressures in the market, while they also expected that as the "conservatism" of potential house sellers in the wake of implementation of the LVRs waned, more houses would come on to the market.
"We expect house price inflation will ease over the coming year from the current annual growth rate of around 10% to around 6.5% by the end of the year."