by Miriam Bell
ASB has just released its latest quarterly economic forecast and it suggests that quieter times are ahead for the country’s currently rampant housing market.
The bank’s chief economist, Nick Tuffley, said the Reserve Bank’s new lending restrictions should slow down the housing market up and down the country over the rest of this year.
“The sort of price growth a number of regions have experienced over the last couple of years will not be sustained. Expect 2017 to be much quieter on the housing front.”
But, in areas where supply is struggling to catch demand, the impact of the new LVRs is likely to wear off, he said.
“Auckland in particular is unlikely to see building consent issuance match population growth requirements for a couple of years.
“House prices in Auckland may bounce slightly in the first half of 2017, after a likely soft end to 2016.”
However, the new LVRs should give the Reserve Bank more room to move in its struggle with low inflation.
ASB’s report states that, despite solid growth and a respectable growth outlook, New Zealand’s inflation outlook remains weak.
“We don’t see inflation exceeding 1% until the second half of 2017, at which point inflation will have been below 1% for nearly three years,” Tuffley said.
This year has been shaped by the Reserve Bank’s ongoing struggle to manage the conflicting risks of the rampant housing market and the impact of a higher exchange rate on the inflation outlook, he said.
“The additional investor lending restrictions the Reserve Bank is introducing give the Reserve Bank a little more room to address low inflation with a reduced risk of inflaming the housing market further.
“We expect the Reserve Bank to drop the OCR to 1.75% by November and, if the NZD continues to hold up, an even lower OCR is possible.”
In a broader sense, New Zealand economic growth is forecast to improve, boosted by migration, construction and non-dairy exports.
Tuffley said that migration inflows remain strong and will support growth, while the strength of the housing market and construction is rippling out to many regions.
“At the same time, exports are faring well generally, with one recent standout being the kiwifruit sector’s record exports.”
New Zealand has managed to weather the volatile global economy well this year.
It also appears to be a good risk for overseas investors, according to the report.
This is because of its non-zero interest rates, reasonable growth prospects, and a degree of political stability that can no longer be taken for granted in many developed countries.
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