Low OCR may not be a sure bet: RBNZ
New Zealand’s rising house prices are a risk to the economy, the Reserve Bank’s deputy governor says, and previous predictions of low interest rates for the next year or two may be revised.
Monday, April 8th 2013, 5:32PM 
3 Comments
by Susan Edmunds
Avoiding another housing boom is critical for the country’s economic and financial stability, Grant Spencer told the Employers and Manufacturers Association in Auckland today.
He said the overall gearing of New Zealand households was relatively low but a growing number had high levels of debt and interest payments consumed a large portion of their income.This made them vulnerable to interest rate movements and also put pressure on banks’ balance sheets.
Spencer said easing credit criteria and rising house prices had pushed more people into the property market. A lack of construction had meant excess demand was driving prices up, Spencer said.
“We are left with concerns that the current escalation of house prices is increasing risk in the New Zealand financial system by increasing both the probability and potential effect of a significant downward house price adjustment that could result from a future economic or financial shock.”
He said if the housing market momentum continued, a monetary response was likely. Governor Graeme Wheeler had previously indicated low interest rates were likely for at least the next 18 months.
BNZ said a collapse in house prices would put the banking sector under pressure but it was hard to see how such a collapse could occur, given the supply constraints that were driving prices up.
Economist Craig Ebert could understand the Reserve Bank's concern. He said: “Surely one of the important lessons the world has learnt over recent times is that grossly over-valued asset prices typically prove a much bigger threat to the economy than a handful of cents on an exchange rate, or a few decimal points on a headline CPI rate; moreover, that unusually low interest rates can exert powerful upward forces on asset prices through manifold channels.”
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Comments from our readers
Futher; our emigration is at a 2 year low, investors and first home buyers have years of pent-up demand, thousands of families have re-located from CHCH and the construction sector has been off the boil since 2008.
My take on that BNZ data was the anecdotal evidence about non-migrants buying all our houses is mostly over inflated nonsense.
'Chinese whispers' you might say.
Farm land; different story.
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