In the throes of a hangover

Westpac economists reckon the Auckland housing market is suffering a hangover from what it calls "recent excesses". But every dark cloud has a silver lining, and that could be even lower interest rates.

The bank reports that house sales fell by 7 per cent across the country in October, and says it's taking slightly longer for property to sell.

"The weakness was especially concentrated in Auckland, with sales down 15 per cent and prices down almost 5 per cent in just one month," say the report's authors.

"This confirms the idea that some of the recent froth in the Auckland market was driven by investors getting in ahead of the new regulations."

Listen to Steve Hart's property podcast below:

These regulations, which came in on October 1, are aimed at foreign and domestic property investors and have pulled the carpet from beneath their feet, meaning less competition for those who want to own a home.

The report says investors have done their dash for now, and the "Auckland housing market is likely to suffer the resulting hangover, for at least a few more months".

The upside is that Reserve Bank Governor Graeme Wheeler may feel more comfortable lowering the OCR on December 10 to 2.5 per cent.

However, as far as Peter Thompson, managing director of real estate firm Barfoot & Thompson is concerned, "the jury remains out" when it comes to the effect of the October 1 changes.

He says the firm's average sale price was up by 0.5 per cent on September's figure to $840,402, but concedes the median price -- a more accurate guide to prices -- dipped by 1.3 per cent to $780,000.

He says: "These movements send mixed messages as to what is happening to prices, but what is clear is that the rate of price rise that occurred in September, at the start of the spring season, has not been sustained."

Thompson says market trends have definitely changed, but maintains it is too early to say whether the changes will have a permanent influence on prices.

"Clearance at auctions has definitely slowed," he says.

"However, buyers are no longer under the same pressure to meet vendor price expectations, and the properties that are selling are those with realistic reserves."

Loan ratios

I wrote at the beginning of the year that the Bank of England had introduced debt-to-income ratios, meaning most people in the UK can only borrow up to 4.5 times their annual income to buy a home.

The system helps prevent people borrowing more than they can afford, deters banks lending more than they should, and helps keep house prices at affordable levels.

New Zealand's Reserve Bank has apparently been considering measures such as this for the past 12 months and, given most cashed-up foreign buyers are looking elsewhere, now could be the right time to introduce such a scheme -- particularly as some people are borrowing more than eight times their annual income to buy a home.