Housing market reaches plateau

JONO GALUSZKA
Last updated 07:35 11/02/2014

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Home values in Palmerston North are continuing to plateau, with the loan-to-value ratio limits and predicted rises in mortgage rates copping the blame.

The value of the average house in Palmerston North increased by 1.3 per cent in the year to January, hitting $287,384, Quotable Value figures show.

The rate of increase has more than halved in the past year.

Values increased 2.7 per cent in the year to January 2012, and 3.6 per cent in the year to January 2013.

But values continued their strong growth nationally, up 9.6 per cent.

QV research director Jonno Ingerson said a declining growth rate was evident in multiple areas, including parts of Auckland.

"Most of the other main centres have also slowed considerably, to the point where values were either flat or slightly decreased in the past month."

While reluctant to label it a trend, he did say the timing of the slowdown lined up with the loan-to-value limits.

The limits have been designed to restrict higher-risk lending.

"These speed limits have reduced the number of first-home buyers active in the market, but perhaps more importantly have led to increased caution among buyers."

A decrease in values and prices due to the limits was signposted in a report from the Reserve Bank.

Released last year, it said house value growth would drop by 1-4 percentage points as a result of the limits. But Mr Ingerson said the LVR limits were predicted to only slow down values temporarily.

Provincial areas like Palmerston North were supposed to be hit harder than larger areas, but parts of Auckland had experienced value rises slowing at a far greater pace, he said.

Some provinces were still experiencing strong growth, while areas like Invercargill and Southland had seen declining values during the past year, he said.

Another issue was also playing a part, as upcoming increases in interest rates - something many economists are predicting - will see mortgage rates go up.

That, in turn, would put another dampener on the market, he said.

"This may in fact already be affecting buyer confidence and contributing to the slowing we are seeing."

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- © Fairfax NZ News

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