How unsustainable are New Zealand’s property prices?

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How unsustainable are New Zealand’s property prices?

New Zealand’s average property value surpassed $1 million in September and is currently slightly over $1.05 million. The Real Estate Institute’s house price index surged by more than 30% year on year.

The largest factor holding up prices, according to Nick Goodall, head of research at property data firm Corelogic, is that banks are well positioned to continue offering house loans to willing customers. The Reserve Bank stated that banks would be able to handle increased capital requirements policy, which some analysts had previously predicted would diminish their willingness to lend.

In addition, unless Firs Home Buyers (FHB) are purchasing a newly built homes, major banks have discontinued financing to owner-occupiers who do not meet the LVR requirements of 20% deposit.

Since November 1, banks have only been authorised to lend 10% of their new loans to owner-occupiers who seek to borrow more than 80% of the value of their home. Investors are subject to more stringent requirements. The LVR requirements forced these banks to adjust its lending policy.

ANZ economists are predicting that the house market is vulnerable to a correction, but the extremely robust labour market is projected to keep housing from entering a big downward spiral.

NZ Property Focus report mentioned despite October’s high 2.3 percent month on month increase in home prices, annual house price inflation is currently easing. The economists say in terms of significant headwinds for the market, these include tightening financial market conditions – including rising mortgage rates, tighter macro-prudential policies, Government policy changes, increasing housing unaffordability and the closing gap between housing supply and demand thanks to a booming construction sector.

As building activity rose, the Reserve Bank signalling that the market could be shifting. However, ASB chief economist Nick Tuffley believes that overcoming the housing shortage in Auckland would take time.

Although interest rates have increased swiftly this year, they are still projected to settle below historical norms, rather than reverting to the 8% or 10% rates observed during the Global Financial Crisis.

Infometrics analyst Brad Olsen stated that banks are still assessing mortgages at “test” interest rates that are substantially higher than the retail rates being charged, so borrowers have the capacity to cope with increases.

Olsen continues “These test rates indicate that banks are more confident about the borrowing they do, and they convey broad confidence that there aren’t a large number of borrowers who are only one OCR increase away from financial ruin.”

In its recent financial stability report, the Reserve Bank cautioned that house prices were unsustainable, highlighting the potential risk to first home buyers.

But, for the time being, each warning appears to be followed by another month of record-breaking property prices.

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 email on

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Ravi Mehta