RBNZ wary of pick-up in housing market

The Reserve Bank is keeping a watchful eye on the country's property market, which has started heating up as low mortgage rates and easier lending criteria encourage first-home buyers.

RBNZ governor Graeme Wheeler, who held the official cash rate at 2.5% today, says the housing market, particularly Auckland, is starting to strengthen with cheaper bank funding costs leading to increased competition and lower mortgage rates.

The bank sees house prices as still elevated relative to income and rents, with Auckland house prices growing faster than the rest of the country.

That has led to a pick-up in household credit growth, housing market turnover and house price inflation in recent months and the central bank is keeping close tabs on the sector to ensure real estate values don't get away on it as they did during the boom of the mid-2000s.

"Higher house price inflation and increased household expenditure would likely lead to higher inflationary pressures than is currently projected," the bank says in special commentary for the December monetary policy statement.

"All else equal, such a development could necessitate a higher OCR."

In the October review, Mr Wheeler zeroed in on the country's tepid pace of inflation, which fell below the central bank's 1% to 3% target band in the September quarter, when the annual pace slowed to just 0.8%.

The bank is forecasting annual inflation to stay near the bottom of the band in the next year, rising to 2% in the March 2015 quarter as building activity ramps up and the persistently strong currency starts to weaken.

New Zealand's property market has been slowly gathering pace this year after a muted period when credit lines dried up in the wake of New Zealand's finance sector collapses and the global financial crisis.

The bank said any credit-fuelled expansion in house prices would also undermine the country's financial stability and could expose households and banks to sharp falls in house prices.


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RBNZ has been wary for some time now. It does not appear that "RBNZ's wary" and "house prices" will be changing soon.

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Same comments six years back from RBNZ, but no action. Low interest rates do not fix anything. Higher interest rates will not lower prices, either.

Housing in Auckland is the price it is due to a number of reasons, Asian buyers parking cash and cashed up Kiwis parking cash to protect cash savings from devaluing due to low interest rates.
Little to do with lack of available new properties as there are plenty, but they are not 300k, they are 600k-plus.

I think building material prices are fair and I think some used house prices still cheap. I think labour is expensive, but then so is the cost of living. I wonder how a tradesman in van is worth $65 an hour when a tradesman in a building with all the associated costs charges $55 an hour. Something’s wrong.

An area of saving is to cut out the average 60k selling commissions cost buyers and sellers pay to sales agencies for sale and re purchase transaction.
Amazes me 75% of vehicle sales are owner to owner, but most house sales are via dealer.

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Graeme Wheeler says he does not want house prices to get away as they did several years ago.
I have news for him, the horse has already bolted! Has he got his head in the sand.
If John Key and his merry men had controlled house prices earlier by various means, such as capital gains tax, immigration, non-resident buying controls, regulating bank lending and many other things, then Graeme Wheeler could reduce interest rates.
The main reason they don't is due to the self-interests of politcians owning so many rental houses in Auckland.
There is NO WAY now interest rates could be lowered. House prices would go through the roof, with more investors and speculators moving into the market.

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All talk and no action. I doubt if the Reserve Bank can exercise any meaningful control over the growing bubble in the property market.

When it finally bursts they will be quick to claim that they had warned about it.

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"Like all artificially-created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged over-investment in housing." - Congressman Ron Paul, predicting the crisis of 2007 on the US House floor in 2002.

It's the same story all over again. This bubble will pop, that we can be sure of.
Credit expansion by the NZ central bank (rates too low, too long) and the interference of the NZ government in the housing market have created this mess.

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Raise the OCR to 10% and the problem will go away. Those who are trying to save through bank TDs will get a fairer rate of return and the speculators will stop borrowing to inflate the price of Auckland houses. No one with a brain is investing in TDs at such pathetic returns.

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Ten per cent would be way too high an OCR for New Zealand, because when you combine other 'NZ attractiveness' factors with it, you'd be making the kiwi dollar way too attractive to offshore investors, inflating the currency too much for too long and hurting exporters, who are the engine room of the economy.

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