A new worry for the market

Friday, April 3rd 2009, 12:00PM

Call me contrary. First it is great to see there is life coming back into the property market. Those of you who follow The Landlord will know that I have been suggesting for some time now that the market isn’t dead and it isn’t going to fall 30%.

There are just too many factors to suggest that there is a level of support which will keep the market and prices from crashing down.

To get a 30% fall in house prices would need an unheard of economic disaster. While it is tough out there, it’s not that bad, nor looking like being that bad.

However, I would suggest that people don’t get carried away with this little bit of positive news we have seen in the market.

Previously I have argued one of the biggest risks is unemployment. As more and more people find themselves out of work, there will be increasing downward pressure on the property market.

The other factor that I have increased my weighting on is banks and finance. It is no secret that banks and their tight, tight rules around lending are hindering the market big-time. That came through loud and clear in the Landlords.co.nz/Mike Pero survey of property investors this week.

What is also concerning is that banks just aren’t lending much. Good Returns has reviewed the latest lending numbers for the period to December 31. There are two surprising findings. Groups like ANZ National have cut their lending activities back significantly. Meanwhile, Kiwibank accounted for the large majority of new lending in the quarter.

It has done such a good job with acquiring new customers that it is now facing a service issue. It seems that it too has reached a capacity point and it will join the big banks on pulling back from new lending.

That means there aren’t a lot of places left for people to find money to buy property. This factor is likely to have a bigger impact on the market than previously thought.

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