Five months have passed since the Reserve Bank pushed banks to restore loan-to-value ratio (LVR) rules, and four months have passed since the unexpected changes to interest tax deductibility were revealed; the shifts it has brought about in the current housing market and its sustainability are minor, but it continues to make a difference.
House prices are currently 10.5 times the disposable household income. While in June 2019, the elevated multiple was sitting at 8.3.
According to recent findings by ANZ economists, it would take 37 years and minimal home price increase for the house price to income multiple to come down to 2019 levels; they anticipate that minor rate rises will go a long way towards slowing the economy. They claim that it would take 37 years of annual home price growth of 3% and income growth of 4% for the median property values to be 8.3 times more than the median disposable family income.
“It’s still early days, of course,” said ANZ senior strategist David Croy, chief economist Sharon Zollner, and senior economist Miles Workman, “but the experience to date suggests policy changes [reintroduction of loan-to-value ratio restrictions, removal of interest deductibility, extension of the bright-line test] so far are not going to bring a lot of difference, and more equitable, housing outcomes.”
The strategists elaborated on this view stating “However, we just don’t think it’s feasible for growth in house prices to significantly outpace income growth for much longer, as at the end of the day someone has to pay the rent or service the mortgage sitting behind such exorbitant house prices. Further, while the picture might change, on current forecasts, the multi-decade tailwind of low-interest rates is probably finding a bottom.” They predict that mortgage rates to top 4% in the coming years.
Meanwhile, sales and home auctions continue to be consistent during the school holidays. The largest agency in the Auckland market, Barfoot and Thompson, processed 154 residential properties by auction in the week of July 17-23, down from 200 the prior week. Sales were made on 100 of those 154, for an overall sales rate of 65 percent, nearly steady from 66 percent the previous week.
Although the market held steady in July, investors have begun to shift away from existing dwellings towards new builds. That is, the government has actively encouraged investors to purchase new builds, which implies that first-time purchasers will be priced out of the market. All they need now is an increase in listings, which is yet to occur.
For professional mortgage & insurance advice, speak to our experienced advisers for a free consultation and no-obligation quote today. Contact the team at Professional Financial Solutions on 09 846 9934 or on our website – www.professionalfinancial.co.nz