House prices a concern: Reserve Bank
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 meant excess demand was driving prices up.
“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.”
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