Truemors
The New Zealand love affair with the housing market has reached "the morning after" stage. The seemingly unstoppable housing investment boom is finally coming to a slowdown. The median house price in the capital (Wellington) fell by $NZD15.000 during July. The Reserve Bank has been trying to put the brakes on this type of "unproductive" investment for some time now, by steadily raising interest rates. The jitters in the world economy is also seen as a contributing factor. Will it be a housing market correction, or a housing market crash?
REINZ attributed the drop-off to a "seasonally challenged" housing market. Economists, however, said the market was slowing far more than could be blamed on the weather. Instead, the sharp lift in mortgage rates was hitting home. The Reserve Bank has lifted rates four times this year in an effort to rein in the housing market's third wind and inflation.That has pushed the housing issue to the centre of the political battleground. Both Labour and National have unveiled plans to help people on to the property ladder. Both have switched focus to the supply side in an effort to help prospective home owners without pushing up property values.
Reserve Bank economist Phil Briggs told a select committee inquiry into housing affordability yesterday that though there was no quick fix to make homes attainable, boosting the supply of land was now a "critical issue" for lawmakers.
The bank said in its submission that the ratio of household debt to income, which was at record levels, was likely to continue to rise. Even if house prices remained static, new purchasers - typically young couples or friends taking joint ownership - would still need to take out a big loan to buy them. With inflation about 2.5 per cent, it would take time for wage rates to catch up.
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