Partly due to the harsher lending restrictions being imposed by banks, the most recent being from BNZ, and partly due to a building boom, many banks and economists are predicting a correction in house prices next year.
The Reserve Bank of New Zealand will proceed with its proposal to tighten Loan-to-Value Ratio (LVR) restrictions on lending to owner-occupiers, to reduce risky mortgage lending. From 1 November 2021, they are restricting the amount of lending banks can do above an LVR of 80 percent to 10 percent of all new loans to owner-occupiers, down from 20 percent, Deputy Governor and General Manager for Financial Stability Geoff Bascand says.
“We launched our consultation earlier this month after observing that despite previous adjustments to LVR restrictions, house prices remained unsustainable and the risks of a housing market correction had continued to rise, increasing risks to economic and financial stability. Restricting high risk lending will help prevent these problems getting worse.”
Regarding the forecast correction in house prices next year, we need look no further than CoreLogic, which is forecasting just a 1.9% price growth over the coming 12 months, and the Mortgage Bankers Association, which is actually forecasting a 2.5% price drop by the end of 2022. .
Economists are picking values to fall in 2022, after new statistics showed close to half all new building consents issued in the year to October were in the overpriced city of Auckland. Consents nationwide are at their highest since the mid-1970s, with almost 48,000 issued in just 12 months – up 26 percent on 2020, and four times the number being issued a decade ago.
Of those, just shy of 20,000 were in Auckland, helping put dents in the country’s housing crisis that’s sent average prices across much of the country into seven figures. ”I think the shortages will persist for another two, maybe three years across New Zealand in aggregate,” economist Cameron Bagrie told The AM Show on Thursday.
“We’re seeing a faster supply-side response is in Auckland; about 20,000 of those have been up in Auckland, a big surge in townhouse numbers in particular. At the same time, Auckland’s population actually shrunk in the last 12 months.”