New Zealand's red-hot housing market could soar to unseen heights this summer as home buyers scramble to buy before tougher home loan lending rules are rushed back in.
House prices were already running at record levels in recent months as houses sold for hundreds of thousands of dollars above council valuations and one Remuera home even fetched $4.4 million this week despite being described as a do-up.
Now further fuel could be poured on the fire by two Reserve Bank announcements made yesterday.
The Government-backed bank said it was considering bringing back restrictions on so-called loan-to-value-ratios earlier than expected - a move pundits said could bring property investors rushing into the market in greater numbers.
It also planned to lend more cheap money to commercial banks, meaning they would likely have more money to in turn lend to home buyers.
Put simply: the two powerful new incentives were likely to give house hunters and investors reason to buy sooner and potentially send prices hiking faster, Ray White Manukau real estate agency owner Tom Rawson said.
"You'll see applications for home loan lending go through the roof and over the next few months it will just go nuts again," he said.
The Reserve Bank's move came as New Zealand's supercharged property market was again turning political.
Prime Minister Jacinda Ardern recently expressed "worry" at the social impact of high house prices.
New Zealand and Auckland hit record median sales prices of $685,000 and $955,000 in September, the Real Estate Institute said.
The sale prices of three properties that went under the hammer via Ray White in Auckland on Tuesday night all well outstripped their CVs.
A three-bedroom 1940s solid stucco home in One Tree Hill was snapped up for $1,281,000 – $301,000 over CV.
Down the road in Onehunga, a mid-1800s workers cottage sold for $936,000 - $156,000 over its CV.
And further east in Bucklands Beach a plain 1970s weatherboard home went for $1,265,000 – $265,000 over CV.
The record prices seemed to be driven by all-time low-interest rates that made home loans cheaper and a "fear of missing out" among buyers.
Changes to loan-to-value ratios also played a part.
LVR restrictions earlier meant banks could typically only give investors a loan that was a maximum 70 per cent of the value of the house they intended to buy.
Investors would then have to raise the other 30 per cent of the home's value themselves.
But in May, the Reserve Bank temporary halted LVR restrictions for at least one year.
The decision was mostly based on a technicality.
It aimed to prevent banks and home owners - who had accepted payment holidays on their mortgages due to fears they would lose their jobs during the Covid-19 pandemic - inadvertently breaching LVR rules.
But banks instead used the relaxed rules to give out more "high-LVR" home loans to people with lower deposits.
This saw a 134 per cent jump in high-LVR lending to property investors compared to a year earlier, ASB economist Nick Tuffley said.
The buying frenzy together with property investors' again snapping up more houses led to calls by economists and others for the Reserve Bank to bring back LVR restrictions earlier than planned as way of cooling the housing market.
The Reserve Bank responded yesterday by announcing it would begin consultations in December on the possibility of bringing restrictions back by next March.
"We are now observing rapid growth in higher-risk investor lending," Deputy Governor Geoff Bascand said.
"We will consult about reinstating the restrictions we had in place pre-Covid, which limited the amount of high-risk lending that banks could make."
Bruce Patten, from Loan Market mortgage advisers, said his business was "already expecting to get an influx" of people trying to score high-LVR loans while they could.
Owen Vaughan, editor of NZME-owned property site OneRoof.co.nz, said the move would only fuel the housing market.
"The Reserve's announcement is basically telling buyers and vendors and investors - transact before March or you'll be hit by the LVRs," he said.
Mortgage Lab chief executive Rupert Gough also tipped prices to heat up.
He said buyers able to get bigger home loans as a result of relaxed lending rules were typically able to pay more when buying - thus helping to push selling prices up.
However, independent economist Tony Alexander cautioned against overstating the importance of LVR restrictions.
High-LVR lending only accounted for about one-fifth of total home loan lending in recent months.
Alexander consequently expected that once LVR restrictions were back in place they would likely only cool house price growth for a few months.
"I'd expect the market to slow down over March, April and May and take off again come June," he said.
Westpac economist Dominick Stephens agreed, saying he expected LVR restrictions to "only take the froth off" house price growth.
Record-low interest rates were instead the most important factor pushing house prices up.
"Over the past three decades the biggest contributor to rising house prices in New Zealand has been a dramatic change in interest rates, and I think what's going on right now is proof of that," he said.
That made the Reserve Bank's second announcement yesterday potentially more important.
It confirmed plans to introduce a new tool to stimulate the economy - called Funding for Lending.
FLP would effectively offer commercial banks a discounted retail rate, which would lower their funding costs and enable them to cut mortgage rates further.
That would likely mean more cheap money flowing out to home buyers.
This apparent contradiction between bringing in LVR restrictions that could help cool the housing market and simultaneously pumping cheap money into the economy and driving prices up met with criticism from National's Shadow Treasurer Andrew Bayly.
"On one hand, the Reserve Bank is adding fuel to the fire of the housing market with its accommodating monetary policy," he said.
"And on the other hand, the Reserve Bank is trying to cool the housing market."
"The Government must ask serious questions of the Reserve Bank and the coherence of their approach."