House sale slump a risk to the economy: NZIER
A slump in house sales is a significant risk to the New Zealand economy, the New Zealand Institute of Economic Research says.
Tuesday, May 27th 2014, 12:00AM
by The Landlord
It has released its latest quarterly predictions, in which it notes that house sales have slumped by nearly 20% in the last six months.
House sales usually lead economic growth by about six months, it said.
“Auckland house prices have surged to record highs. Investor demand is driving the Auckland market. In an investor-driven market, sales and prices can turn rapidly. A sudden stop in house sales could make banks more careful in lending. That would put the brakes on broader economic growth.”
NZIER said further interest rate hikes were likely, to cool the Auckland housing market. But there could be a pause after next month’s increase, if the economy was seen to be slowing too quickly.
“The RBNZ will be wary of causing a housing bust in the provinces and sectors outside of Auckland housing, which are not overheating.”
NZIER economist Shamubeel Eaqub said investor demand was driving Auckland’s house prices, because rent prices had not increased to the same extent.
He said the best path for Auckland’s house prices was a moderation rather than a sharp reduction, which would destabilise confidence and spill over into non-housing parts of the economy.
NZIER said slowing growth in China was another economic risk.
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