Property prices raise risk of more RBNZ tightening

NZ property prices raise the risk of further RBNZ tightening

According to latest statistics from Quotable Value New Zealand, national property prices rose 11.1% over the past year (calculated over the three months ending May 2007 in comparison to the same period last year). The growth rate accelerated from 10.6% reported in April, and 9.8% in March. The accelerated growth in property prices comes despite a slowing in net-permanent migration, and two interest rate hikes in March and April (the data does not include the impact of last week's tightening - which took the cash rate to a record 8%). The latest report by QVNZ will only fuel frustrations within the RBNZ over monetary policy's inability (to date) to cool New Zealand's over-heated housing market, and increases the risk of yet another tightening in July.

QVNZ stated that: "Despite some expectations that property prices may level off, the market has continued to strengthen. Sale prices in the main urban areas keep rising, driven by significant activity in the lower value localities". Auckland City's property values increased by 7.5% - up from 6.6% in April. Hamilton, Christchurch and Dunedin also reported higher growth rates at 11.8%, 12.4% and 8.7% respectively. Wellington City remained stable with property values growing at 13.3% over the past year.

It remains clear that supportive levels of net-permanent migration and a tight labour market continue to underpin growth in national house prices. That said, the recent run-up in mortgage lending rates will slowly-but-surely choke the resurgence of growth out of the market. The average mortgage rate is likely to break through 8% this week as the major banks reluctantly adjust their lending rates higher (across the curve) in response to last week's RBNZ tightening and hawkish commentary. The RBNZ is determined to rein in New Zealand's housing market and has left the door wide open for another tightening.

ENDS

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