Could the Reserve Bank actually ramp up its use of LVR-style constraints of home lending rather than taking them off? That's the potential if a second wind developing in the Auckland housing market continues into next year and the bank follows through on its latest thinking on the use of Macro-Prudential tools to control asset booms.
First home buyers have not been knocked out of the high LVR mortgage market completely, but remain a relatively small part of the overall market as rental property investors and existing home owners dominate, new figures show.
The Bank of England's warnings over the last month about the affordability of mortgages worth more than four times income has sparked speculation the Reserve Bank of New Zealand could impose some sort of cap on mortgage to income multiples.
The Reserve Bank published its half yearly Financial Stability Report on Wednesday. It is a stock-take of the health of the financial system and gives a useful update on the banking regulator's thoughts on its latest policy moves, including the high LVR speed limit, and its assessment of the risks ahead for the system. Here's 5 things of note from the report and the comments by the banks Governors in a news conference and an appearance before Parliament's Finance and Expenditure Select Committee.
BNZ Chief Economist Tony Alexander has led the debate around non-resident buying of homes in Auckland with his BNZ-REINZ survey of real estate agents' views and his call for Australian-style restrictions. The issue is shaping up as a big one for the September 20 election and now Alexander has raised the prospect of a greater surge of investment from China that could leave houses in Auckland empty. He suggested even Australian-style restrictions may not be enough to dampen house price growth.
Veda Advantage has reported mortgage applications from Generation X and Y borrowers fell more than 13.5% in the March quarter from a year ago, while their applications for personal loans grew more than 12%.
The Reserve Bank has given more detail around its thinking on the interactions between monetary policy and its new macro-prudential tools, including indicating that the high LVR speed limit could be removed once interest rates have been tightened to 'more normal' levels . Deputy Governor Grant Spencer said the policy was having the same impact on inflation as 25-50 basis points of OCR hikes.
Consumers are the most optimistic they've been in nine years, but the Reserve Bank's high LVR policy and warnings about higher interest rates next year mean they're less likely to buy a big-ticket item or spend a cash windfall than they were earlier in 2013, a new survey shows.
The Reserve Bank may be about to repeat its warning of higher interest rates next year, but effective mortgage rates have actually been falling over the last 18 months and that fall is set to accelerate in the coming months for most borrowers as banks pass on cheaper borrowing costs and ramp up competition for low LVR borrowers.
For the convenience of email subscribers, here is the longer uncut version of my Herald on Sunday column on why deflation is now the major challenge for central banks all over the world, including New Zealand. I titled it: 'When prices go bad.'