While market is “difficult to forecast,” bank says some constraints look set to weigh momentum down
Several “fundamental factors” – such as the re-imposition of loan-to-value ratio (LVR) restrictions – could weigh down the red-hot momentum of the country’s housing market, according to a new report from ANZ.
In its report, ANZ acknowledged that momentum in the country’s housing market “has been extraordinary, exacerbated by tightness in the market, with very low listings, an emerging speculative dynamic, and rising house price expectations.”
It warned, however, that “at some point, the acute and worsening unaffordability of housing must weigh on the rate of house price inflation.”
“That is especially given the unsustainable disconnect between soaring house prices and stagnant income growth,” ANZ said. “Credit constraints are expected to be a headwind at some point too given income prospects, an expected slowdown in deposit growth, and broader bank prudence expected to weigh.”
And while admitting that the housing market is “difficult to forecast” and “can be a hard beast to rein in once it gets going,” ANZ said that, over time, fundamental factors like income growth, affordability considerations, weak population growth, strong building, and credit constraints look set to slow down its growth.
“Indeed, the re-imposition of loan-to-value restrictions could be a catalyst for a slowing in momentum, with the RBNZ expecting it will shave one to two percentage points from house price inflation and calm ‘irrational exuberance,’” ANZ said.
