Latest BNZ-REINZ Residential Market Survey shows that would-be first home buyers continue to desert the housing market

The housing market has now been "handed over" to investors, foreign buyers, and people shifting house or trading up or down, according to the latest BNZ-REINZ Residential Market Survey.

The December results of the survey - which attracted the highest number of real estate agent respondents in over two years, at 587 - basically reaffirmed the November results showing first home buyers deserting the market in droves.

This has been in response to the Reserve Bank's introduction from October 1 of "speed limits" on high loan-to-value lending, a move principally aimed at ensuring financial stability but also with an eye to cooling the rising house market.

BNZ chief economist Tony Alexander said that in the December survey 77% of the agents responding reported seeing fewer first home buyers. This followed the November results when 78.4% of the 250 respondents that month reported fewer first-timers in the market.

"This wholesale withdrawal of a class of buyers who earlier this year accounted for near 24% of dwelling sales helps explain why the REINZ sales data for November released last Thursday showed sales to all parties down 6.6% from November 2012," Alexander said.

In tandem with this slowdown in sales, huge respondents to the latest survey note that the number of people going through open homes was reducing - a net 52.2% of respondents observed this, the most on record in the survey. In addition, respondents noted a big drop in auction clearances.

The RBNZ last week did an abrupt about-turn on part of the LVR policy following skilled lobbying and strong pressure exerted by the building industry. Lending on new house construction is now exempt.

But to this point first home buyers are not exempt, although the Government wanted them to be, and has introduced various measures to help first home buyers around the LVR limits.

Alexander said that the survey had again this month asked agents a question periodically asked, regarding what proportion of their sales were to first home buyers.

"In contrast to" the results of 23.6% in March and 23.3% in May the proportion now was only 15.3%, he said.

"The residential real estate market has been handed over to investors, foreign buyers, and people generally shifting location or trading up or down," Alexander said.

Backing this assertion up was the fact that a net 5.6% of agents this month reported that they are seeing more investors investors in the market. That compares with 6% in November. And while this is down from as many as a net 26.3% seeing more investors in September, the figure has remained positive - IE there are more investors being seen in the market.

The big swing that was seen last month from this being a seller's market to a buyer's market has been maintained, with a net 16% of agents - about the same as last month - feeling that it is now a buyer’s market.

Alexander said a net 38.8% of agents reported auction clearance rates worsening. 

"How do we reconcile this outcome with the strong auction sales data contained in the REINZ sales release last week? Their data captures sales which arise very soon after an auction with people who attended and agents report that although sales are now less frequent under the hammer negotiations immediately after are occurring with positive outcomes," he said.

A net 12.5% of respondents now felt prices are rising compared with 22.8% last month and 51.2% in September just before the loan to value ratio rules came into effect.

"These remain early days for the LVR regime and it is likely to be many months before things settle down to a new equilibrium," Alexander said.

"The Reserve Bank looks certain to achieve its primary goal of reducing the proportion of bank lending undertaken at high LVRs. However their subsidiary goal of curtailing the speed of house price rises may be only minimally achieved.

"Price pressures in the NZ housing market are likely to remain firm over 2014. Net migration inflows are booming courtesy of a sharp reduction in the attractiveness to Kiwis of shifting to Australia. Leading indicators of employment growth are strong and getting stronger, and although housing supply is rising growth will be limited by a shortage of builders from some point next year."