Over the past three years the economy has been riding the wave of a booming housing market.
Thursday, May 19th 2005, 7:02AM
by The Landlord
After going sideways for about four years, house prices on average rose about 47 per cent over 2002-04 and are still going up.
The number of sales peaked in late 2003 but after falling steadily for most of last year got a second wind from a mortgage rate price war among the banks towards the end of the year.
Several factors have been driving the boom.
One is that the move to a low inflation economy over the past 17 years has led to a structural shift down in interest rates generally, compared with the last boom in the mid-1990s. So a larger mortgage can be serviced from the same income.
Secondly, incomes have been rising - around 7 per cent over the past year - as a result of more jobs and higher wages. And people feel more secure in their jobs as a result of the tightest labour market in a generation.
Even so, ballooning mortgage debt means the interest bill is taking a bigger bite out of incomes than it has for many years, leaving at least some people vulnerable if interest rates keep climbing.
There was also a boost from net migration, influenced by returning expatriates and fewer new New Zealanders leaving.
