N.Z. House Prices Rise at Fastest Annual Pace Since 2007

New Zealand house prices rose 9.8 percent in April from a year earlier, the biggest annual increase since 2007, as central bank Governor Graeme Wheeler urges banks to limit risky home lending.

House price inflation accelerated from 8.6 percent in the 12 months through March, and was the fastest since a 12 percent pace in the year ended September 2007, according to an index published by the Real Estate Institute of New Zealand Inc. Prices rose 0.8 percent from March and are up 3.9 percent this year, the institute’s report showed.

Wheeler is requiring banks to hold more capital against risky home loans, concerned that low interest rates and competition between banks is stoking borrowing and home prices. The central bank has kept the official cash rate at a record-low 2.5 percent since March 2011 and is reluctant to increase it because there is a risk higher borrowing costs will further boost the New Zealand currency, damaging exports.

“With the high New Zealand dollar, the RBNZ will want to shy away from cash rate hikes as long as possible,” Mark Smith, senior economist at ANZ Bank New Zealand Ltd. in Wellington, said in an e-mailed note. “It is likely to deploy macro-prudential tools to cool lending if housing market buoyancy continues.”

The tools, which include the ability to limit high loan-to-value ratio lending, are being developed by the central bank as a way of slowing home lending when risks of a property bubble emerge. About 30 percent of all home loans are for 80 percent or more of purchase prices, according to central bank figures.

‘Problematic’ Gains

“The recent growth in house prices is problematic from a financial stability perspective,” Wheeler said in a report last week. He also said May 8 that the central bank had sold the New Zealand dollar to curb its gains.

House-price gains are being driven by Canterbury amid rebuilding from the 2010-11 earthquakes, and in Auckland, reflecting a shortage of supply, the Real Estate Institute said. Prices in Auckland rose 14 percent from April last year.

Prices in Wellington rose to a record and “several regions appear to be benefiting from the tail wind generated by the strength of prices in Auckland and Christchurch,” said Chief Executive Officer Helen O’Sullivan.

House sales rose 25 percent in April from a year earlier to 7,104 -- the highest for the month since 2007, today’s report showed. The median time to sell a house fell to 34 days from 37 days a year earlier.

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