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LVR restrictions not enough: ASB

It will take a combination of a hike in interest rates and more houses being built to take the heat out of the Auckland housing market, ASB’s chief economist says.

The bank today released its latest housing confidence survey.

In the three months to October, a net 56% of respondents said they expected prices to rise over the next year. That result was exactly the same as in the previous survey.

Chief economist Nick Tuffley said demand was still rising and supply was not keeping up.

“The resulting imbalance will continue to place pressure on house prices. The Auckland market in particular remains very tight with the pace of house price growth accelerating over the past few quarters.”

He said the recently-introduced LVR restrictions would not be enough to make a difference on their own, although they might dampen demand.

But the survey showed they are affecting perceptions of whether now is a good time to buy.

A net 5% of respondents now believe it is a bad time to buy, down from a net 0% in the previous survey. The net respondents who said now was a bad time to buy in Auckland increased from 17% in August to 29% in October.

Tuffley said: “This was a considerable deterioration in sentiment and followed the introduction of the high loan-to-value lending restrictions. Given Auckland house prices are considerably higher than the rest of the country, even after adjusting for income, it remains a more challenging market for a first-home buyer to raise the 20% deposit now required.”

A net 52% expected interest rates to increase over the next 12 months compared to net 39% in the previous three months.

Tuffley said: “The RBNZ’s increased concern about the housing market outlook and warnings of higher interest rates in the future has seen a growth in market expectations of rate increases. Adding to this, some fixed-term mortgage rates have also increased in recent months. We continue to expect the RBNZ will increase the OCR from March 2014.”

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