It's not the banks with the housing stockpile

I first heard the story that banks were stock-piling mortgagee properties earlier this year and sent one of my team out to investigate it.

It sounded pretty interesting as the premise was that banks were holding properties back from the market, therefore giving house prices some artificial floor.

I see the story appeared again in the Sunday Star Times. http://www.stuff.co.nz/business/4291388/Banks-drip-feed-mortgagee-sales-to-prop-security

Well, unfortunately it isn’t 100% correct. In New Zealand banks don’t actually take ownership of properties when a borrower defaults – like they do in the United States.

In New Zealand banks manage a sale process to recover their money and during that time the owner could actually sell the property (with the bank’s approval).

Banks have also told us that when borrowers get into difficulty their first step is to try and manage the process and find a solution with a mortgagee sale being the last option.

So this theory banks are propping up the market sounds good, but actually looks different.

If you want more on what banks do when a borrower defaults have a read of this story http://www.landlords.co.nz/read-article.php?article_id=3657

Instead it is purchasers who are keeping downward pressure on house market – especially in the lower end of the market. The more people at the coal face of real estate I talk to the more this message comes through.

One active property investor actually made the comment recently investors aren’t responsible for driving house prices up – as is commonly thought. Rather it is their duty to drive prices down so they can get better deals. (While at the same time pushing rents up!)

We will soon get into another round of house price reporting and everyone is looking for a spring bounce. I’m not sure we will see one – however feedback it that the middle end of the market is doing well. Good prices, reasonably quick sales, but a lack of stock.

It’s the lower end that is struggling. Two factors which will make a difference are some more certainty around tax rule changes which were first announced in the Budget. The second is bank’s willingness – or should that be unwillingness – to lend.

There are tentative signs funding is getting ever so slightly easier. But it is still hard.

Once a bit more money is made available expect to see a lift in house prices.

Considering we are, apparently, through the worst of the global financial crisis, and that banks are making some of their best ever margins on home loan lending at the moment, there is reason to be hopeful around the question of finance.