Prime Minister John Key says he is confident the property market will settle down, despite the Reserve Bank's new mortgage lending restrictions.
The new rules come into effect tomorrow and will limit the number of home loans banks can make on purchases with a loan-to-value ratio greater than 80 per cent, meaning most would-be owners need to have a 20 per cent deposit.
Open homes in the sub-$500,000 price range in Auckland were unusually quiet over the weekend, apparently because buyers knew they would be unable to close a deal before the new rules come into force.
Speaking on Newstalk ZB this morning, Mr Key acknowledged the changes meant people would have to save longer to get into a home.
"But the other side of the coin is if house prices keep going up in Auckland by double digits every year that leaves those first home buyers very exposed because at some point that bubble would burst and they would have borrowed an enormous amount of money against a property that's no longer worth that.
"It's very risky.
"Overall, we'll need to let this thing run. The Reserve Bank has the independence to do that and the Government shouldn't interfere on that front.
"But I'm confident over time the market will actually settle down and hopefully what that will mean for these first home buyers is they'll be getting better value for money when they buy their home.''
MARKET OFF THE BOIL?
Open homes in the sub-$500,000 price range in Auckland were unusually quiet over the weekend, apparently because buyers knew they would be unable to close a deal before the new Reserve Bank rules take effect tomorrow.
The change limits the number of home loans banks can make on purchases with a loan-to-value ratio greater than 80 per cent - meaning most would-be owners need to have a 20 per cent deposit.
The apparent cooling of the market comes as a Herald-DigiPoll survey reveals almost 60 per cent of New Zealanders think house prices should come down to help first-home buyers.
Just under 14 per cent said they weren't worried about house-price increases and 21.7 per cent said they wanted only moderate increases.
Sam Bellairs of Glover Real Estate in West Auckland said that over the weekend, the agency's three offices - in New Lynn, Green Bay and Titirangi - received only one offer on a house despite there being a usual number of listings. There were usually at least five offers.
The offer was on a $435,000 three-bedroom property in Glen Eden.
Yesterday, the Titirangi office received only one phone call, compared with the usual two dozen on a Sunday.
"The phone has certainly got a lot quieter," Mr Bellairs said.
"That's a bit unheard of. It is going to have an effect, there's no doubt about it. We're experiencing that. I'm sure if we do, everybody else will."
One couple had put an offer in on a house last week for $505,000 but had to pull it because their bank had cancelled its loan pre-approval.
The ASB Bank said last week that it was withdrawing outstanding loan offers for borrowers with less than 20 per cent equity so it could meet the Reserve Bank's new rules.
The regional sales manager for Bayleys Counties, Raymond Mountford, said a survey of his agents in Takanini, Karaka and Papakura yesterday showed open homes over the weekend were quieter than usual.
Auckland mortgage broker Bruce Patten of Loan Market, which administers lending through ASB, said his company had a rush of calls from worried customers after the Reserve Bank announcement, and again last week after ASB's change.
The bank sent out letters on Wednesday advising of the change for the company to give to its customers - two days after the public announcement and nine days before its final date (this Friday) for cancelling the pre-approvals.
"I think if they'd given it any longer, it would have created a bit of a false economy, with people going out and buying for an unrealistic price just for the sake of getting into the market," Mr Patten said.
The Reserve Bank expects its new rules will affect as many as 8000 of the 20,000 to 30,000 families, couples and individuals who seek to buy their first home each year.
The policy is intended to reduce the chances of a collapse in the housing market and the damage a crash would inflict on home buyers, banks and the economy.
Housing Minister Nick Smith said steep falls in house prices, in the order of 10 to 20 per cent, could cause significant economic problems.
He said there was no question that the 16 per cent increase in Auckland house prices in the last year was unsustainable. The national median house price in August was $390,000, while Auckland's was $550,000.
The Government wanted the median house price to be about four times the median household income.
Last year, Auckland house prices were 6.9 times the median income.
Labour Party finance spokesman David Parker said nobody wanted to lurch from rapidly rising house prices to a market crash.
But the poll showed "New Zealanders are not yet ready to give up on the Kiwi dream of owning your own home, and they recognise that the house-price inflation we've got in our main centres like Auckland threatens that".