The impact of the Reserve Bank's curbs on mortgage lending at high loan-to-value ratios (LVRs) on the housing market has been pretty modest so far, says the ASB's chief economist, Nick Tuffley.
The central bank introduced the restrictions on October 1 to bolster financial stability by strengthening banks' ability to withstand a potential sharp fall in house prices, and to reduce the odds of such a fall by cooling the housing market.
It has been far more successful at the former than the latter, Tuffley says.
But ASB also thinks the housing market was already starting to slow before the LVR restrictions came in and will continue to do so this year under the more potent influence of higher mortgage rates and increased construction.
The impact of the LVR curbs on banks' new lending has probably been greater than the Reserve Bank expected, Tuffley said, with the proportion of new loans at LVRs over 80 per cent dropping from over 25 per cent last September to just 3.8 per cent (after exemptions) in January - well under its 10 per cent limit.
But banks have been competing more vigorously for low LVR lending and growth in total lending to households has not slackened from the pace prevailing since early last year, around 0.5 per cent a month.
The initial impact on turnover in the housing market was a 7.4 per cent drop in sales in November, seasonally adjusted, and a further 0.5 per cent decline in December, concentrated at the lower end of the market. But January's data showed a significant rebound in turnover, suggesting some buyers had taken a wait-and-see approach at first, Tuffley said.
Meanwhile the supply side of the market remained very tight, he said.
Over the December quarter as a whole new listings in Auckland were 6.5 per cent lower than in the September quarter and as of last month the number of houses on the market in Auckland was almost 15 per cent below the level a year ago.
On house prices Tuffley said it was hard to disentangle what would have been happening in the housing market in the absence of LVR curbs from what we actually see, but the impact seemed marginal rather than dramatic.
ASB's economists were expecting house price growth to peak around the end of last year or early this year anyway. Based on the Real Estate Institute's stratified index, house price inflation in Auckland peaked at 17 per cent around August last year, Tuffley said.
He expects house price inflation nationwide to moderate from 10 per cent to 6.5 per cent by the end of this year as rising mortgage rates bite and an upsurge in construction reduces pressure on the market.
The Reserve Bank is widely expected to start raising the official cash rate next week from its all-time low of 2.5 per cent.
"We expect a fairly gradual tightening cycle with the OCR expected to reach a peak of 4 per cent by the end of 2015, which would imply floating mortgage rates around 7.25 per cent."