New Zealand house prices rose at the fastest pace since 2008 in March as the central bank warns that a housing boom would trigger interest rate increases.
Prices rose 6.5 from a year earlier, Quotable Value New Zealand, a government-owned property research company, said in an e-mailed statement. There hasn’t been a bigger increase since the 12 months ended February 2008.
“The number of properties on the market remains limited,” Jonno Ingerson, research manager at Quotable Value, said in the statement. While the rate of increase in prices is slowing in some cities “it is still too early to tell if this is the start of a more widespread slowing,” he said.
Central bank Governor Graeme Wheeler said March 14 that he expected to keep borrowing costs unchanged this year. His deputy Grant Spencer yesterday said the stance may change were rising property demand to stoke a damaging housing boom.
“If the house price and credit expansion begins to fuel excessive consumption spending and inflationary pressures, a monetary policy response would become more likely,” Spencer said in a speech to business leaders in Auckland. “The Reserve Bank’s flat interest rate outlook in our recent monetary policy statement would need to be revisited.”
The central bank has kept the official cash rate at a record-low 2.5 percent since March 2011 to help the economy recover from devastating earthquakes, and a global slowdown that curbed exports. Wheeler is reluctant to raise borrowing costs because the nation’s currency is rising and a drought may slow growth this year, he said last month.
New Zealand’s dollar has gained 2.3 percent against the U.S. currency this year, the best-performing Group of 10 currency. The trade weighted currency index is at its highest since the dollar began freely trading in March 1985.
The currency rose to 84.82 U.S. cents at 12:12 p.m. in Wellington from 84.70 cents before the statement.
Wheeler is also considering prudential tools such as raising home-buyers’ minimum deposits and tightening restrictions on bank balance sheets to ward off a property bubble. The central bank is seeking feedback from lenders and wants to have an agreement in place with the Finance Minister by mid year.
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