Business

LVRs having effect - economist

08:04 am on 12 March 2014

The housing market is slowing faster than the Reserve Bank expected to when it introduced restrictions on lending to people with small deposits late last year, an economist says.

The latest figures from the Real Estate Institute show that, nationally, house prices rose 2.1 percent in February from the previous month and were 8.2 percent higher than in February last year.

Photo: RNZ

However, the number of sales dropped nearly 7.6 percent compared with February last year, mainly due to a 17.7 percent fall in sales of houses worth less than $400,000.

Institute chief executive Helen O'Sullivan said the Reserve Bank's restrictions on lending to people with small deposits, otherwise known as loan-to-valuation (LVR) restrictions, seemed to be having an impact.

Westpac chief economist Dominick Stephens said the market slowdown had been more acute than the central bank anticipated.

"The Reserve Bank was forecasting about 2 percent per quarter house price inflation at this stage but I think the latest data we've had suggests that house price inflation has probably slowed to about 1 percent a quarter in early 2014," Mr Stephens said.

The Reserve Bank had believed the LVR restrictions would have a serious effect on the market but it was always a bit of an unknown what the effect would be, he said.

"It looks as though it's been a little sharper and earlier than expected."

However, Mr Stephens did not believe that would bother the Reserve Bank as it was able to "roll with the punches" as data came in.

The LVR restrictions would broadly be considered a success in that they had stopped highly leveraged, highly indebted people entering what had become quite a dangerous housing market, he said.