Interest rate rise may need to be sharp: NZIER

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Interest rates will need to rise quickly next year if the loan-to-value restrictions don’t make a big enough dent in Auckland’s house prices, the NZIER says.

Wednesday, November 27th 2013, 12:00AM 3 Comments

by The Landlord

Auckland’s house prices are now up 15% on 2007. Canterbury’s are up 7% while values in the rest of the country are still 25% below their 2007 peak.

Mortgage approvals soared between 2011 and this year but had dropped 17% in value since September, NZIER said.  It the risk to the economy of a potential fall in house prices was high.

“The RBNZ is loath to raise interest rates to control the Auckland housing market, because inflation is still low and the recovery is still in its early stages.”

Rents have not kept pace with house prices rises and NZIER economist Shamubeel Eaqub said that indicated that the problem was a shortage of houses to buy, not houses to live in.

He said that if the Auckland Council and Government were successful in achieving their target of 39,000 new homes in the next three years, there was a risk of an oversupply in the market.

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