LVR restrictions bite

LVR restrictions have been in force for just over a month. They are beginning to bite.

LVR

Mortgage approvals rose between the announcement and implementation dates, but have fallen sharply since then.

Mortgages approvals are closely correlated with house sales. Which in turn lead house prices. The LVR restrictions appear to be having the desired impact.

Many banks have pulled their mortgage approvals (in the media: ASB, BNZ and Westpac).

The question for the RBNZ is, is it temporary or is it a harbinger of a bigger change in borrowing and housing market movements? IMO its still too early to tell.

  • http://tvhe.co.nz/ Matt Nolan

    My main question is, did the LVR restrictions lead to an earlier surge that has abated – implying there was a falling trend in approvals prior to RBNZ action. Or was the mid-year drop base effect.

    • Shamubeel Eaqub

      We will find out soon enough Matt! I reckon the trend was already down, but there was a post announcement surge. The down trend has deepened because there is now a quantitative restriction in place.

  • boristhefrog

    Better question – how much of the mortgage approvals actually relate to house buying vs refinancing? Because if you go back a couple of years mortgage approvals were rising quickly but house sales weren’t…

    I would expect the Nov house sales data to be quite weak seasonally adjusted as the pre-approvals should have washed out of the system by then… but we will have to wait and see…

  • Miguel Sanchez

    So a quantitative restriction restricts quantity. Is this not a rather trivial finding? Was there anyone you’d take seriously who was saying this wouldn’t happen?

  • Michael

    Hello Shamubeel. I am going to change tack slightly as I’d like to ask you a question. In the Dominion Post of 9 Nov 2013 on page C2 you are quoted as offering high praise for National’s fiscal management, saying you think that the Government’s fiscal management has helped the economy. But I am confused because on the same page is a list of statistics which paint a very poor picture of National’s performance after 5 years, with debt very high, the gap between income from the tradeable sector and the non-tradeable sector widening since 2008, unemployment up from 2008, worsening income inequality, and so on and on – and this without even mentioning the social and environmental cost of their policies. It seems to be disaster on all fronts. So what are they getting right? I can’t understand how such a catastrophic record gets portrayed as a success when Labour’s record, from 1999 to 2008, so much rosier, attracted no such praise? I am not a Labour supporter, but a confused citizen, as I
    see such a disconnect between reality, if that is what is portrayed by those figures, and the supportive comments of some economists (but not all, eg Rod Oram).

    It mystifies me, I hope you can explain. Thanks.