Canterbury homes head price charge
Canterbury's house prices have been galloping ahead at a 12 per cent annual rate of increase, pointing towards stronger Government intervention in the heated market.
Reserve Bank governor Graeme Wheeler said the bank was also keeping a close eye on the housing market and its impact on inflation.
He yesterday noted pressures in Canterbury prices with a double-digit annual rate of increase and in Auckland where the annual level of increase has fallen from a 10 to 12 per cent peak.
Taking those two strong markets out of the equation, the house price increase in the rest of the country was about 5 per cent, he told an audience in Canterbury yesterday.
The bank was mindful of the pressures that could come from a "housing boom", as well as what was happening with inflation, higher construction costs and the impacts on people's wealth, he said.
"They've come off a little bit in Auckland in terms of rate of increase. They were running at around 10 to 12 per cent at an annual rate towards the end of year; they're currently running... around 8 per cent. In Christchurch it's around 12 per cent... " he said.
"We're monitoring the situation very carefully."
His public comments during the past week were the strongest signal yet that officialswe re concerned about housing affordability.
The RBNZ kept the official cash rate unchanged at 2.5 per cent this week, and commentators saw that low level providing cheap money for mortgages, driving house prices higher.
Wheeler said the bank kept an eye on the housing market by looking at the house price to household disposable income ratio. It also carefully watched debt levels held by Kiwis, and household credit growth.
In terms of dealing with financial sector stability the RBNZ did not want banks providing mortgages to become "overdrawn", given the impact potentially of a collapse in house prices or a sharp decline in house prices.
Wheeler said that alongside other countries New Zealand performed poorly in terms of its budget deficit and low national savings.
"If you look at household balance sheets... roughly about 70 per cent of household net worth is represented by housing and that's quite high."
The ratio of "owner-occupied" houses in New Zealand had fallen to about 67 per cent from a level of 70 to 75 per cent previously.
The RBNZ would consult with financial institutions on the potential use of "macro-prudential" instruments, including restrictions on high loan-to-value lending. Loan-to-value ratios or LVRs are a lending risk assessment ratio.
HOUSE PRICE FACTS
Annual house price rate of increase, according to the Reserve Bank: Christchurch's annual house price increase now about 12 per cent. Auckland's annual house price increase lower at 8 per cent. Annual house price increase for the rest of New Zealand is 5 per cent.
The impact of house price inflation on the average Kiwi: Makes houses less affordable as prices outstrip wages and salaries. Higher mortgages result in extra monthly mortgage payments.
Impact of housing inflation on the business community: Inflation eventually sees the RBNZ hiking interest rates, making it more expensive for businesses to invest.
Higher interest rates tend to drive the New Zealand dollar higher, making New Zealand exporters less competitive.