New Reserve Bank figures show a pre-election slump in mortgage borrowing similar to that seen before the 2014 election

By David Hargreaves

The election appears to have rained on any potential signs of spring bloom for the housing market, with September's mortgage borrowing figures mirroring those seen before the 2014 election and showing a more than $1.2 billion fall when compared with the figures at the same time last year.

And what is worth noting is that the figures at this time last year were already then beginning to be affected and dampened by new Reserve Bank LVR rules.

In fact the latest month's mortgage borrowing figure is a massive $2 billion drop when compared with the boom spring-is-sprung September figures of 2015 - before the latest LVR rule changes.

New Reserve Bank figures highlighting mortgage figures by borrower type for September show that just $4.567 billion was advanced for mortgages in the month. That tallies very closely with the experience seen in 2014 (the election then was September 20 compared with September 23 this year), when just $4.264 billion was borrowed for house purchases.

As we know, the housing market roared back into life after the 2014 election with the normally quiet December month seeing as much as $5.5 billion advanced that year as particularly housing investors celebrated the return of a status quo and housing-speculation-friendly National Government.

Time will tell, but it's much more unlikely we will see a similar pattern this time around. First, the change of Government is likely to make buyers more cautious and second the market has already been crimped by a combination of the Reserve Bank's tough 40% deposit rules for investors and far more conservative lending practices by the banks. Bank economists themselves have used the term 'credit rationing'.

The aforementioned 40% deposit rule officially came into force in October 2016 but in reality the 'spirit' of the new rule was applied by the banks from after the RBNZ announced it on July 19, 2016.

This means that the monthly figures from now onwards are starting to compare with figures from last year that were also impacted by the 40% deposit rule.

Prior to application of that rule investors had been accounting for about a third - or even a bit more - of the monthly borrowing totals, while first home buyers were at times accounting for less than 10%.

By September 2016 the new deposit rules were really starting to bite and investors in that month made up about 26% of the total borrowed - well down on the type of figures they had been borrowing.

The interesting thing is that to this point anyway, there's no particular sign of the investor participation bouncing back, with the percentages hovering around the 22-23% amount.

First home buyers on the other hand are steadily accounting for around 14% of the amounts borrowed each month.

In September 2017 investors borrowed $1.048 billion, which accounted for 22.9% of the total.

The FHBs borrowed $658 million, which represented 14.4% of the total.

The Reserve Bank has expressed satisfaction with how the borrowing figures have been tracking, but has kept warning about the possibility of a resurgence of housing pressures.

But with a new Government promising more houses to be built and potentially fewer migrants coming here, along with a ban on offshore buyers of existing housing stock, such a scenario is looking less likely and questions are likely to be soon asked about whether the RBNZ will be relaxing the LVR rules next year.

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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42 Comments

Be interesting to see how much bigger the post election slump is going to be.

Unlike 2014 normal house buying/selling won't resume after election because people are worried about the new government's policies

New policies are what is needed and Jacinda will deliver.
National future is Max Key so he claims
The comedy continues

Labour supporter NL ?

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....Lying awake, staring at the ceiling, specuvestors are wondering if the house/s they bought might end up worth less than the colossal mortgage they never intended to pay off in the first place. An anxiety fueled search for a bigger fool to offload too will soon prove to be futile. The exit door is closing. Advice for first home buyers - WAIT!

Why do you worry/care about speculators losing their shirt if they over-extended themselves ?

Some measure of schadenfreude aside, there's nothing positive in the widespread bankruptcy of many of our fellow New Zealanders.

Very, very well said Conrad

If it plays out like that, I wonder if it'll turn kiwi's off property investing in the same way the sharemarket crash & dotcom bubble did for equities?

there's nothing positive in the widespread bankruptcy of many of our fellow New Zealanders. Can the same thing be said about letting such colossal excesses build up while those in power turn a blind eye, inviting this correction? Specuvestors only invested in one basket money they can afford to lose - NOT

Nothing wrong with a few bankruptcies for people to learn their lessons.

What's the basics of investing again?
Diversify.
Don't leverage.
Dollar cost average.

Why do you worry/care about speculators losing their shirt if they over-extended themselves ? Yvil, is this a loaded question? :)

I really can't see the point of your post, can you please tell me how our post adds to anyone's benefit ?

.

It may be that questions will soon be asked about whether the RBNZ will be relaxing the LVR rules next year.
However, I would expect that the RBNZ would easily respond that:
- value to incomes are still too high
- house-building output is still not meeting requirements
- LVR limits have been very positive for FHBs, who are the principal political concern
- NZ cannot risk having the ratio of private debt to income go any higher, it is already beyond the point where the IMF says there is an elevated risk of financial instability.

@Peri That's hilariously wrong. LVR restrictions absolutely mauled FHB causing them to be shut out of the relatively cheap market in 2013/14 they were only able to renter the market in 2016/17 at the damn peak. Screwed out of affordable housing they became the bag holder for the sellers at the top. For the life of me i cant fathom why the high amount of FHB buying in 2017 is seen as some sort of victory? If they had been big buyers in 2013 and 2014, under a FHB exemption then sure, fantastic, but no, rather the complete opposite.
https://dhffl75trpavh.cloudfront.net/blog/files/214_1452548542018_Share_...

Value to income is outdated, affordability is the main factor not income ratios.

House building is indeed not meeting requirements but who will want to build houses if all prices do is continually slide lower... maybe some of those those sweet faced FHBs I guess :-)

As to personal debt ratios been a problem for the economy, its hyper complex but at the end of the day no one has been able to demonstrate that private debt does in fact by itself cause catastrophe.

And how do you define affordability. You seem to be splitting hairs - house price to income is one means of defining affordability. If you take a purely mechanical approach to affordability and put numbers into a formula you can get an affordability figure but as has been demonstrated recently banks can and will redefine affordability on a whim. Additionally the mechanical approach is in part what caused the GFC. Put in the numbers - the application spits out a result so all must be right. What happened however is the application made a lot of assumptions which proved to be the downfall of the banks. I reiterate again people don't understand risk and banks are no better than anyone else. Read Fooled by Randomness by Taleb if you want to know more.

But first please define what you mean by affordability.

The problem you describe seems to be a problem with the implementation of LVR limits, and not with their effectiveness. I would say this implementation problem is an argument for the permanent application of LVR limits.

Laminar. The market was not cheap in 2013/4, but maybe it was in 2009/11, or 2001/2, or 1989/92 or 1975/80. I would suggest you watch the film "The Big Short" one or two times carefully as the dialogue rewards a degree of concentration. And yes there are catastrophic consequences, for some - relationship breakups, bankruptcy & suicide.

Bullshit. Banks could still have a portion of their new loans outside the LVR limits, ensuring FHB could still get in the market if they could afford to.

I don’t think LVRS are the right restrictions to be used . What are they going to do , put LVRS on then off on then off, market up down up down. Make the market more steady with a fear DTI restriction and put LVRS back to 20% for all. In time after the term oil we’re about to have finding affordability again the market would make less bubbles and climb more evenly

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I wonder when there will be an awakening that actually people cant afford to buy $1m houses on a large scale.
The houses are worth only how much someone will pay for it. We had buyers that had 'printed money' from China or equity of other rental properties. Now that funding is gone. So, how can you buy $1m house (and that will not be anything flash!) without $500.000 cash $150k job to cover the mortgage.

And now ideas about taxation .... just taks all multiple properties ! Easy money!

jerry_NZ, the awakening is here, haven’t you noticed, houses ARENT going up $20000 a month anymore. Listing ARE growing. Sales ARE getting less. Auctions ARE getting fewer . Houses ARE taking longer to sell. China (a big driver of the boom) is clamping down on money leaving China. Debt is 40% higher then 2007. It’s looking more and more like national twisted the truth about the % of foreign buyers and the true amount of empty houses in Auckland. With no capital gains there’s no buying frenzy. All this happened under national. Now for the last nail in the coffin and about time and great. Labour in and stopping foreign ownership of houses and immigration numbers being lowered. PLUS the real killer of high house prices is adding to supply which is exactly what labour’s doing in mass. A few things to watch out for jerry_NZ, the amount listings grow in Auckland compared to sales and how much people are dropping their prices. Keep a special eye out if listening go crazy and housing being dumped because at some stage the foreign investors could leg it. Also at some stage Auckland’s sales will be so low the rest of the country will slow down which it has already a little bit. I’ve noticed trademe middle estimates dropping heaps. If this was a more local driven boom in the country like 2002 to 2008 i wouldn’t expect a big drop because locals would step back in early seeing discounts. But this boom was fired up mainly by overseas money and a buying frenzy on low interest rates. It’s anyone’s guess how low we go to find local money

O4 there is suddenly 10500 Auckland properties for sale on Trade Me. Up from 9500 not that long ago. Will this affect the number of sales and the prices being achieved in Auckland. Time will tell.

Gordon that’s about 500 in about 4 days . Yeah normally you’d have listings coming on and off per week and hopefully staying the same and if the days to sell are short prices go up. This is more listings going on and stuff all coming off. The ones selling I believe are already dropping their prices now but that’ll get worse and with that prices plummet. Everyone will be fighting over that minimum amount of buyers. I believe we are miles of the buyers needed to keep prices from falling and of course that’s prices down and also banks not willing to lend . Prices could drop slow but I worry about 2 things, just how desperate some investors are to get out or reduce stock quickly because people will buy on the way down and prices are only going to get less so some might feel they need to sell early at all costs and the foreign investors is a whopping worry

Wow Auckland's residential property listing just spiked on TradeMe to 10525. I'm sure that was 400 less before the last weekend. Looks like they're indeed heading for the exit.

If you filter out the apartments, sections and anything under 300K to remove the "houses for removal" the figure is only 6,700.

12 active listings in Kohimarama. Barely changed. Sorry if that doesn't fit the narrative or bores the rest of you to tears.

About 11 houses for sale in Greenlane.

Playing with figures - you can ignore what you don't like - it's also called gaming the system.

Remuera 91 listings, now that has increased quite a bit.

Remuera home owners such as Mike Hosking are panicking....IT IS GOING TO CRASH SOON!!

What was the corresponding number of 'filtered' listings previously? Direction of travel is more interesting to me than the absolute numbers, unless you have special knowledge of the proportion of apartments, sections etc increasing faster than the type of listings you are disregarding?

YeahNahhh... It doesn't work that way Zac. That's a bit like saying if you filter out any thing that's likely to be owned by a foreign investor/speculator. Which is our point; with the recent Government announcements in foreign ownership it's highly likely that this has spurred a lot of Speculative Investors in to selling asap.

Very good news for FTB's and NZ's greater economy.

Haha you spruikers were including those houses to showcase how affordable houses were last week, until I pointed out you'd included them, "look at all the houses in Auckland under $600k" - now they're irrelevant. Lies, Damn Lies and Statistics young Zachary.

Zach, Ex-expat, the party IS over with the new government. Listings will continue to rise, number of sales continue to be very low. Values flat at best, likely down.
CJ099 If house prices were to tank, it would NOT be a good thing at all for the Economy. People would tighten their belt and stop spending on all areas. This affects everyone including yourself. It's a downward spiral called a recession

House prices tanking is not a recession. It's just making home affordable.

A recession is generally identified by a fall in GDP in two successive quarters.

Well how much of our GDP growth was exporting house price ownership?

OK gooki, let me explain.
Let's say house prices crash, all house owners feel less wealthy, they reduce their spending at shops, restaurants, leisure, cars, holidays, clothing, renovations etc... All said shops and businesses make less money and stop hiring and some will let staff go, some will even go bankrupt. Now unemployment is also rising which means people spend even less and everything gets worse.
That's how the economy works

The bit that I've never been able to reconcile is how bad the recession feels even if the GDP fall is small. It's like a dark cloud looms over every part of your financial life. No-one wants to commit to anything, they want a discount, it takes ages to get paid. Redundancies are common. You're glad to have a job, and forget about increments and bonuses. Boy, just recalling my actual experience in the early 1990s reminds me why I have been so careful with money over the last 27 years.

Yvil, recessions are a natural part of the economy. I've been preparing for one the last five years. I have no leverage, cash in the Bank and am patient. While I don't wish ill on fellow NZ'ers, people will learn life long lessons about money stewardship when a recession hits e.g. budgeting, quality of income. What's an asset and what's a liability. For much on the shadenfreud (sp?) here, it's the people that live pay to pay that will be most affected. The leveraged types seem to structure themselves to avoid their liabilities, witness the developers living the life of luxury after being bankrupted.

Absolutely agree ExExpat

(BTW, Schadenfreude, german, taking pleasure in others misfortune, Schaden = damage or loss, freude = pleasure)