LVR house price impact muted
ASB economists say low-deposit lending restrictions have had little impact on house prices but may have helped reduce risk to the financial system.
The Reserve Bank introduced the loan-to-value ratio (LVR) rules in October in an attempt to curb house-price inflation and reduce the buildup of risk on banks' balance sheets.
In a research note, ASB economists said early evidence suggested the impact of the restrictions was at the lower end of the Reserve Bank's estimates.
While housing demand had eased in recent months, the impact on house prices was muted.
There was a 7.4 per cent drop in sales in November, followed by a 0.5 per cent drop in December.
Sales data from Auckland real estate firm Barfoot & Thompson and the Real Estate Institute of New Zealand showed a more pronounced drop in sales at the lower end of the market.
The number of sales under $400,000 fell 12 per cent in the fourth quarter of 2013, while sales at the upper end were not greatly affected.
January's data showed a significant rebound in sales volumes, most of which came from the lower end of the market.
The ASB economists said they expected house-price inflation would ease from the current 10 per cent to about 6.5 per cent by the end of the year.
While the housing market is little changed, the effect of the LVR restrictions on financial stability has been more marked.
The latest Reserve Bank figures show a sharp drop in the banks' proportion of new mortgages with an LVR above 80 per cent.
While over 25 per cent of their lending fell in this category in September, that had shrunk by January to 3.8 per cent, well under the 10 per cent limit.
The sharp decline has been largely offset by an increase in lending to borrowers with more equity, with overall mortgage lending little changed.
The ASB economists said given that the Reserve Bank had highlighted the risks of high LVR lending, the change suggested it would "conclude some success in improving financial stability".
The bank's economists said interest rates were still the most effective tool for constraining the housing market for either monetary policy or financial stability purposes.
"We continue to expect the RBNZ will increase the official cash rate by 25 basis points at the March 13 meeting," they said.