Auckland house prices are expected to rise at more modest levels in 2016 as lending curbs for investors in New Zealand's biggest city offset likely declines in mortgage rates, according to rating agency Fitch Ratings.
The global ratings agency anticipates the continuing supply shortage in Auckland will underpin house price growth "to be maintained at modest levels" in the city, it said in its global housing and mortgage outlook for 2016.
At the same time it expects mortgage rates will fall in the year with the official cash rate sitting at a record-low 2.5 percent, while a cooling housing market will limit property lending growth.
"We expect demand for housing in Auckland to be driven by a supply shortage that will be partially offset by decreasing affordability and LTV (loan-to-value) restrictions," the agency said. Across the country, it forecasts nominal house prices to rise 4 percent in 2016.
Property values have been underpinned by a hot Auckland market in recent years, where rapid inbound migration and a shortage of supply has pushed up prices. The central bank introduced Auckland-specific lending restrictions in November, while the government's more stringent enforcement of taxing speculators' capital gains began in October.
State-owned valuer Quotable Value figures this week showed regulatory curbs took some of the steam out of the Auckland market in the final three months of the year, and the agency predicted values may decline in the coming months before the shortage of supply and low interest rates reignite activity.
Fitch predicts New Zealand's regions will see more stable lending growth as prices outside Auckland rise at a "very modest" pace or stay static.
Mortgage rates are seen rising in 2017 as dairy prices recover from last year's slump leading to an increase in the OCR, the ratings agency said. Still, slower growth from major trading partners such as China would maintain downward pressure on interest rates, it said.
The ratings agency expects the current low forecast payout to dairy farmers as keeping house price growth "modest to static" in the country's regions.
While Fitch expects price growth in Auckland to stay at modest levels, it sees low numbers of building consents and increased demand from net migration as limiting affordability, which is "near unsustainable levels".
Construction has been lagging population growth, and unlike Australia and Canada, the industry is not responding to high prices or fewer New Zealanders emigrating to Australia, the ratings agency said.
Government data this week showed building consents in Auckland were practically flat in November 2015, while Westpac Bank industry economist David Norman noted supply remains well below the 11,000 estimated dwellings required each year for Auckland to meet its long-term supply shortage.