ANZ: Is market sustainable?

It said the overall trend in the housing market and residential building consent activity continued skyward last month, although construction rates were still too low in Auckland.

“Our main concern is around the likely durability of a nationwide housing market recovery, given already-high debt levels and a weak labour market backdrop.”

It said the economy was showing signs of becoming unbalanced, with a lift in spending activity but the on-going effects of the drought and the high currency making business tough for exporters. Labour market data was still week.

ANZ uses 10 gauges to signal which way property prices might go. Only one – interest rates – is pointing purely up this month. The bank noted that there had been a small drop in some of the fixed rates available.

Affordability had been dampened by another lift in house prices, the bank noted. The Real Estate Institute reported house price inflation had reached an annual rate of 8.6%, the highest since October 2007.

But serviceability was under control because of the low interest rates on offer. The report noted that debt servicing as a percentage of disposable income was at a 10-year low.

Supply factors were starting to exert less upward force on prices as more houses became available but the report noted that large shortages still existed in Auckland and Christchurch.

There had been a small lift in the pace of rental price growth.

ANZ also commented on the possibility of loan-to-value restrictions being implemented to tackle the heat in the housing market. 

It said such a measure would limit the funding available to marginal borrowers and make some people think about whether they could afford the home loans they wanted.

It said LVR restrictions could also alter market expectations of credit and property price cycles.

But it also noted that it LVR restrictions might be difficult to implement, and might just move lending to the non-bank sector.

Restrictions could be difficult to apply consistently with different valuation components interpreted differently. The report said restrictions would also not address localised regional property issues and a drop in the number of transactions could increase house price volatility.

LVR restrictions could add compliance cost, ANZ said, and make it harder for first-home buyers to purchase a home. It said overseas evidence of LVR restrictions did not provide conclusive evidence of them having worked.