You may well be over hearing about the constant meteoric rise of house prices. Every news report seems to contain something about house prices and their distinct lack of affordability.
A big driver of the surge in house prices has been the wave of comparatively cheap money that has been made available to some. NZ banks have (at least in my opinion) a disproportionate favouritism toward lending on houses over lending on productive assets. This means that much of this cheap money ends up on mortgages.
However, after a period of rampant borrowing and price inflation, the Reserve Bank is now getting a bit nervous about how this is all playing out. More specifically, that if housing prices get the speed wobbles, it would present a risk to ‘financial stability’ – something that the Reserve Bank take seriously.
Here is where there is a balancing act. The Reserve Bank knows that as interest rates increase, demand for houses – and therefore the speed of their price appreciation – decreases. It’s been well documented that the Reserve Bank has effectively said it wants to take some heat out of the housing market and many commentators have picked increases in interest rates are on the horizon.
The interesting bit: How much? We’ll sit on the fence and say that it’s hard to say. On the one hand, the Reserve Bank needs to be seen to be taking action, on the other hand, they don’t want to spook borrowers and slow the economy down. Interesting conundrum. Got some debt or thinking about taking some debt on? Interest.co.nz have some analysis/opinion on this, read about it here.
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