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Home loan growth down

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  • Home loan growth down

    Home loan growth down
    By JAMES WEIR - The Dominion Post | Monday, 31 December 2007

    In another sign of a cooling house market, the rate of growth in bank mortgage lending has slowed to its lowest level this year.

    Latest figures from the Reserve Bank show total home loans worth almost $153.6 billion, up 13.3 per cent for the year to the end of November. The annual rate of growth peaked at 14.4 per cent during the winter.

    The Reserve Bank has been increasingly concerned about the rising level of household debt, low savings rates and rising house prices, which appear to be overvalued relative to household incomes.

    The central bank figures show the value of home loans continued to rise each month for the last few months of the year, but seasonally adjusted the increase has slipped from 1.2 per cent in May to 0.8 per cent in November.

    Typically, home sales increase in the spring months, but this year has been marked by a large slump in sales volumes from the boom of the past few years, indicating that bank lending will slow even more in the months ahead.

    House sales volumes in November were at their lowest level for seven years and were down 22 per cent on the same month last year.

    The median price was up 6 per cent for the year, a slower rate of increase than the 13 per cent annual average for the past five years. Median prices have been almost flat since April.

    Harcourts chief executive Bryan Thomson said recently the market had "cooled", but that had followed a huge first half of the year when prices and sales volumes rose.

    The number of sales was down but still at "solid" levels. "Prices are holding, so it's a more positive picture than many are painting," he said.

    The market was moving into a more stable phase after several years of record activity, Mr Thomson said. He expected solid sales levels in the coming months, but people who bought in the past year or so might be disappointed if they expected to make a big capital gain by selling soon, and might not even get what they paid for the property.

    The Reserve Bank is forecasting house prices to be flat next year, and some bank economists are expecting flat or slightly falling prices. Some commentators suggested sales volumes were down because of high prices putting homes out of reach, especially for first-time buyers, as well as increased interest rates.

    The Reserve Bank raised official interest rates four times this year to keep a lid on inflation, pushing floating mortgage rates among the big banks to about 10.5 per cent.

    Two-year fixed rates are at 9.4 per cent, up from about 8 per cent late last year.

    The "effective" or average mortgage rate for all outstanding loans has risen about 150 basis points since late 2003, to 8 per cent now, with the prospect that the average will rise to almost 9 per cent by early 2009.

    In other words, the interest rate pain has worsened in the past three years, with almost as much pain to come next year.

    The housing boom started at the end of 2001 and prices have doubled since then to a national median of $352,000.

    The boom was sparked by rapidly rising net migration after the terrorist attacks in the United States, falling New Zealand interest rates in 2002 and 2003, higher household incomes and the tax treatment of rental properties.

    Supply could not match demand and prices rose rapidly. But the migration gain has slowed sharply, from 15,000 a year ago to just 6600 more people in the past 12 months.

    Typically, a 1 per cent gain in total population (41,000 people) tends to lead to a short-term 10 per cent rise in house prices.

    "There's one way to find out if a man is honest-ask him. If he says 'yes,' you know he is a crook." Groucho Marx

  • #2
    The Reserve Bank has been increasingly concerned about the
    rising level of household debt, low savings rates and rising house
    prices, which appear to be overvalued relative to household incomes.
    Can I rephrase that . . . .

    The Reserve Bank has been increasingly concerned about the diminishing
    level of household incomes, low savings rates and rising house prices, as
    wages and salaries appear to be under-valued relative to house prices.

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