No interest rate drops this side of 2010

Scope for a low interest rate driven fresh boom in the housing market in the next four years will be miniscule, says BNZ chief economist Tony Aexander.

Tuesday, March 27th 2007, 9:17AM

by The Landlord

Last week’s Statistics NZ data revealing low productivity growth suggests inflation pressures will remain firm in New Zealand going forward, he says, and scope for easy monetary policy will be extremely limited.

Fixed interest rates for most terms have increased over the past week, with BNZ’s seven-year rate rising from 7.77% to 7.97% and the three-year fixed rate rising from 8.3% to 8.5%.

30% of fixed rates mature in the coming year at an average rate of 7.7% and roll onto rates perhaps 0.5% higher if not more.

However Alexander says it is questionable whether the slow rise in average interest rates will cause any substantial easing in the “obviously rampant” housing market.

Set against the spectre of rising interest rates are a number of positive factors influencing the property market, he says.

“Net migration inflows are running at above average levels. The government is considering helping middle to low income people in high priced locations buy properties. Listings are in short supply around the country and investors are hungry for property along with owner-occupiers. The labour market is very tight, with low unemployment delivering high job security. Wages growth is strong and likely to accelerate. Next year the government is likely to hand out freebies ahead of the election.”

Most economic commentators are picking a 50:50 likelihood that the Reserve Bank will again hike the official cash rate at the next review.

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