A consensus is growing around two issues in the residential property market - agents want to see more good quality property listed for sale, and first-home buyers have virtually deserted the market.
The first issue is a perennial, especially across Auckland where the shortage of property and a growing population have led to soaring prices in the last three years.
The second issue follows the Reserve Bank's clamp-down on low-deposit purchasers, which took effect from October 1.
While property experts say it is too early to judge the effect of the bank's loan-to-value ratio restrictions, there is already plenty of evidence from the auction room and open home industry frontline that the restrictions are having a major impact, particularly on the lower end of the residential market.
Although some evidence is anecdotal, feedback from real estate agents and others in the industry suggests many younger buyers have given up searching for property.
To some extent, first home buyers are being replaced by investors anticipating increased demand for rental property by those prevented from gaining a toehold on the residential property ladder. Just how much of the slack is being taken up by investors, and the impact of the changes on property prices, will start to be revealed over the next three or four months.
Agents will tell you that investors tend to be cashed-up ready to buy, are market savvy and can drive a harder bargain than first-time buyers who often develop an emotional attachment to the property.
There is debate within the industry about whether the October sales statistics give an accurate reading on the impact of the Reserve Bank's intervention. It takes around six weeks for most property transactions to work their way through the system, and October could have been distorted by an overhang of bank pre-approvals being used by first-home buyers.
Also, numbers could have been held up by a rush to beat the restrictions, which were well signalled by the bank as far back as August. But industry indicators grew throughout last month that suggest the Reserve Bank Governor Graeme Wheeler will take comfort that his efforts to head off potential problems caused by low-equity house buyers over-extending themselves, are starting to work.
The bank is worried that if households, particularly in Auckland, take on too much debt, a fall in house prices could leave them owing more on a property than what it's worth.
Problems could arise as early as March and April when the bank is expected to start increasing interest rates, further squeezing those highly-leveraged households.
The danger of that squeeze causing problems is obvious when you look at the impact a 2 per cent increase in mortgage rates would have on an Auckland household with an average $400,000 mortgage.
At current rates of around 6 per cent, the household is paying around $1321 a fortnight.
But the bank is suggesting rates could increase to around 8 per cent in the next two or three years. If that happens, the household will have to find an extra $222 a fortnight.
As a result of the October changes, banks have increased the price of high loan-to-value ratio mortgages and virtually halted loans to buyers with less than a 20 per cent deposit.
The Reserve Bank argues house prices, particularly in Auckland, are high relative to rents and household income. New Zealand house prices increased just over 120 per cent between 2000 and 2007, before the global financial crisis knocked them back by about 10 per cent.
House prices started to rise again in late 2009, increasing nationally by 16 per cent since then.
Household debt is another worrying indicator. The household debt to disposable income ratio increased from 100 per cent in 2000, to 153 per cent at its peak in 2009. It fell modestly following the GFC, but has since increased to 146 per cent as housing-related credit growth has outpaced income growth.
House prices in the United States, Ireland and Spain dropped by 30 to 40 per cent after the global financial crisis. As a result a quarter of borrowers in the United States found themselves in "negative equity" where they owed more than what their houses were worth.
Before October's restrictions, New Zealand banks were lending around 30 per cent of their mortgages to those with less than 20 per cent deposits. The bank wants the
new restrictions to halve the number.
Indications are the bank will succeed, with the Reserve Bank's statistics showing housing market approvals were, on a seasonally adjusted basis, 2.2 per cent lower in October than September. Real estate agents and mortgage brokers say the changes have resulted in more uncertainty in market sections, and fewer people attending open homes. Builders say the number of inquiries for new homes has fallen sharply. They are trying to persuade the Reserve Bank to exempt new homes from the restrictions.
Meanwhile, the Government and Auckland Council are pressing ahead with schemes to encourage the development of affordable new homes.