New Zealand's housing market has definitely passed its peak, Westpac's economists say.
The bank has issued its latest Quarterly Economic Overview.
In it, it says there is no doubt that the market has started to slow.
“Sales fell by 11% in the three months to December, the average time to sell is lengthening and there are early signs that house prices are rising at a slower pace.”
The bank’s economists expect house price growth of 6.5% nationwide this year, down from 10% in 2013.
The drop in sales since the introduction of LVR restrictions had been concentrated at the cheaper end of the market, the report said. But two-tier mortgage pricing and lenders' efforts to grow the low-LVR portions of their lending books - a market the economists said seemed to have surprised the banks with its potential for growth - had created favourable conditions for people with big enough deposits.
Higher interest rates would be the biggest constraint on house price growth in 2014, they said.
The bank’s economists said Auckland’s shortfall of housing was not as severe as they had thought last year. The Census had reported a lower population than estimated and the increase in housing stock has been faster than expected, they said. “We now estimate that over the past five years, Auckland has built 13,640 too few dwellings. A year ago the comparable figure was 21,840.”
But they said a further 53% increase in construction would be needed before the number of people per house began to fall gently in Auckland, as would be expected as a result of demographic trends.
Wellington and Nelson were also building too few houses, they said. Elsewhere, construction rates were roughly keeping pace with population growth.