Residential sales both locally and national are continuing to break records, but the Reserve Bank is watching the market closely, stating they will re-introduce LVR restrictions if banks are getting carried away.
Here’s what you need to know:
Auctions Breaking Records from last Year and earlier this Year
The pre and post-election weeks saw no slowdown in auction rooms, as the residential property market continued onward with its strong numbers. Auckland’s largest real estate agency, Barfoot & Thompson, had an overall sales rate of 60% in its auction rooms, which was also in line with results over the last few weeks, where sales rates have mostly been in the low-to-mid-60% range.
In terms of Suburbs, Auckland Central had the highest number of auctioned properties with a sales rate of 62%, followed Rodney (67%) and the North Shore (56%).
Nationally, records were continuing to be broken, with 394 residential property auctions monitored by Interest.co.nz in the week from 5-11 October, which was more than double (+133%) the 169 auctions monitored in the equivalent week last year, there was a sales rate of 66%, up from 54% from the same time last year.
Prices are also firmer compared to last year, in the week of 7-13 October last year, 69% of the properties that sold fetched more than their rating valuations. But in the week from 5-11 October this year, 91% of sale prices were above their rating valuations.
Auctions are also busier now than they were in the first two weeks of March, which is traditionally the busiest month of the year for real estate sales. In the first two weeks of March, before COVID-19 lockdowns were introduced, which suggests that not only is the market more buoyant now than it was at this time last year, but that it’s also stronger than it was at the height of last summer’s selling season. Over the two weeks from 2-15 March this year the average sales rate was 57%.
Reserve Bank Governor “looking at” re-introducing Loan to Value Ratio (LVR) Limits
Reserve Bank Governor Adrian Orr announced during the Institute of Finance Professionals New Zealand (INFINZ) virtual conference that the central bank is “looking at” the prospect of re-introducing loan to value ratio (LVR) limits on bank mortgage lending “if we think that banks are getting carried away and outside of sustainable risk appetites”.
The RBNZ removed the limits on high LVR lending back in May, saying these would be lifted for at least 12 months. Since then there has been a significant increase in the amounts of high LVR lending to particularly first home buyers and to investors.
On the question of the recent upsurge in activity in the housing market, Orr said: “When will it worry us? When we are seeing it being driven by very high leverage loans and when we are seeing it being driven by investors rather than households and that is where our tools are marketed.”
Orr stated that they are watching the market “in real time” and will not signal if or when they will re-introduce the restrictions.
-by Ravi Mehta from Professional Financial Solutions