House prices on the rise again
After a period of cooling towards the end of 2015 and the start of 2016, the Reserve Bank said housing markets are again on the rise in its Financial Stability Report released on 11 May.
“Imbalances in the housing market are increasing with house price inflation lifting again in Auckland, after cooling in late 2015 and early 2016 following new restrictions in investor loan-to-value ratios and government measures introduced in October.
“House prices have also begun increasing strongly in a number of regions across New Zealand, although house prices outside Auckland are generally much lower relative to incomes.
“Further efforts to reduce the imbalance between housing demand and supply in Auckland remain essential,” RBNZ Governor, Graeme Wheeler said.
Deputy Governor, Grant Spencer, went on to say that whilst the moderation in house price inflation has been transitory, LVR restrictions have substantially reduced the proportion of risky housing loans on bank balance sheets. This is providing an ongoing improvement to financial system resilience.
The Bank said it is closely monitoring developments to assess whether further financial policy measures would be appropriate.
Although the Reserve Bank left the official cash rate unchanged at 2.25 per cent at its meeting on 28 April, Governor Graeme Wheeler said further easing of monetary policy may be needed due to low inflation.
Economists are now gauging the likelihood of a rate cut in June with some saying Governor Wheeler may be prepared to wait until August while he considers further measures to cool a resurgent housing market.
“The door to a June cut remains open,” said Cameron Bagrie, chief economist at ANZ in Wellington. “But we see this as very much a line-ball call. Additional easing may not be in the best interests of the economy.”
Kate Mundy, an economist at ASB Bank said: "We continue to expect the RBNZ will cut the OCR again in June and August, with risks slightly skewed to a later move."
The Reserve Bank will meet again on 9 June.