Prices will follow turnover: ANZ

In their latest Property Focus report, they say the Reserve Bank must be taking heart from the slowdown in turnover reported since the loan-to-value restrictions came into effect and the Reserve Bank began hiking interest rates.

“Sure house prices haven’t been reined in as much as [the Reserve Bank would] like but with the expectation that another OCR hike is just around the corner, this is just a matter of time.”

Of the ten gauges the economists use to predict the future path of house prices, only migration is pointing purely up. Possible negative influences on prices were affordability, serviceability, and interest rates.

On balance, they said the market was “caught in the headlights”. “The market is yet to feel the wrath of a slowdown, though it has a soggy feel under the bonnet.”

Loan-to-value restrictions were likely to remain in force until next year, they said.

“The restrictions have worked a treat; had they not been enacted we would likely see interest rates 30 basis points higher. However, such measures cannot be kept in place indefinitely before the law of unintended consequences starts to unfold, so such a mechanism is on borrowed time. That said, we should be careful what we wish for: if they’ve saved the RBNZ having to hike by 30 basis points, bringing LVR restrictions off carries the reverse implications.”

The report also looked at housing supply around the country and found that, nationwide, the market was only slightly out of kilter, with excess demand of about 3400 dwellings.

Problems were region-specific but not as dire as earlier reports had suggested.

A shortage of 14,000 units in Auckland, or 3% of housing stock was a problem but far from a disaster, the economists said.

“[It] to some degree partially explains why the rental market has not gone ballistic. Recall, early estimates put the housing shortage in Auckland as high as 30,000 units; revised and updated census figures have cut that by more than half. One of the peculiarities about Auckland’s housing issues has been the disconnect between the shortage thesis and lack of movement in dwelling rents. According to the March 2014 CPI, the annual increase in Auckland dwelling rents was 2.3%, not much above that of the 2% nationwide average and half the 4.9% rise in Canterbury.”

They said while Auckland received the most attention, as a proportion of the housing stock, Canterbury and the Bay of Plenty faced similar challenges.