“The housing market is always worth watching”
ANZ economists believe that the Reserve Bank of New Zealand (RBNZ) could tighten its loan-to-value ratio (LVR) restrictions “if things really start to get silly” in the housing market.
They said in ANZ’s Weekly Focus publication that the housing market is “always worth watching” – emphasising that it could show real signs of taking off soon.
“It’s got the bit between its teeth again. Around the nation, towns and cities are racing to set new records for the unaffordability of housing. Auckland annual house price inflation is back in the black (just), with very limited listings providing the price impetus,” the economists said, as reported by Interest.co.nz.
They predicted a 5% to 6% annual growth in house prices as record-low mortgage rates “are clearly working their magic” and banks have an incentive to try to grab market share in this sector.
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The economists noted that a strong housing market supports sentiment and GDP growth.
“On the downside, it’s not the sort of growth we need. Household debt is already very high, housing affordability is already a significant economic and social problem, and house price rises further exacerbates wealth inequality,” they said. “If things really start to get silly, the RBNZ has the option of tightening up LVR restrictions once more. We wouldn’t rule it out.”
They are also looking out for business sentiment activity indicators, watching credit availability, details of the government’s infrastructure spend-up, and indicators of resource stretch and inflation pressure in the economy.
“The main theme of our forecasts remain the same: the New Zealand economy is navigating some typical late-cycle challenges that make high speed more difficult to achieve, but as things stand, there is nothing that suggests a derailment,” they added. “That said, global risks resulting from a decade of unprecedentedly easy monetary conditions have not gone away, and markets and sentiment can turn quickly, so to be honest we wouldn’t expect to be able to see that kind of thing coming.”
“But while building resilience into one’s business is very important, planning for the worst case scenario at all times will ensure a legacy of missed opportunities. New Zealand businesses appear to be returning to a mind-set of seeking out openings and possibilities, and it’s great to see.”
