New Zealand House Prices, Sales Fall on Month in October

The report said the existing loan-to-value ratio (LVR) rules had restrained house prices at first, but the effect had waned over the past year, especially in Auckland.

New Zealand’s major lenders are able to cope with a protracted downturn in the dairy sector, which the Reserve Bank estimates could cause credit losses of as much as 18 percent over a four year period.

Earlier this year the Reserve Bank imposed new 30 percent deposit requirements on property investors in Auckland to cool the market, while at the same time relaxing the amount of low deposit loans Bank can make available in regions like Hamilton and Tauranga.

New Zealand’s financial stability is facing growing risks from the global downturn in dairy strong class=’StrictlyAutoTagBold’ strong class=’StrictlyAutoTagBold’ prices and soaring house strong class=’StrictlyAutoTagBold’ strong class=’StrictlyAutoTagBold’ prices in the biggest city of Auckland, the central bank warned on Wednesday.

REINZ announced yesterday that nationwide there were 7,838 dwelling sales during October 2015 and excluding Auckland, the number of sales increased 27.5% compared to October 2014, and rose 5.5% on the previous month, September. It highlights potential risk areas and measures the Reserve Bank is taking to respond to them.

The latest Real Estate Institute of New Zealand data showed Auckland sales fell sharply in October, while median prices were also in decline.

House price growth in Auckland has increased strongly, with house price-to-income ratios in the region now comparable to those seen in a few of the world’s most expensive cities.

“LVR restrictions have been eased outside of Auckland where housing market activity has been more subdued”.

The bank also wants the country’s five biggest lenders to the dairy sector – ASB Bank, ANZ Bank New Zealand, Bank of New Zealand, Westpac New Zealand and Rabobank New Zealand – to stress test their portfolios.

High debt levels combined with the city’s changing market are potentially a danger, particularly if borrowers’ incomes fall, migration levels drop and demand falls away, investor buying decreases or mortgage rates rise, according to a Reserve Bank report just out.

“In the current environment of low interest rates, rapidly rising house prices, and elevated household debt, lenders need to take particular care to maintain adequate testing of loan serviceability”.

However, the report says it is low interest rates which have contributed to the housing demand.

Indebted dairy farmers faced a second season of below break-even incomes due to low global prices.

Deputy governor Grant Spencer said banks were working with dairy farmers experiencing difficulty, and it was important that they continued to take a medium-term view when assessing farm viability.