RBNZ speech on housing:

  • Says LVR restricitions working to reduce the housing market imbalance
  • overall view is that housing market pressures are easing gradually
  • LVR lending restrictions will not be lifted before late in the year
  • Says housing market pressures and the NZD will effect timing of rate rises
  • overall slowdown in housing market activity has also been reflected in house prices
  • Based on current market interest rate expectations, adjusted for an average mortgage interest margin, floating mortgage rates could be 7 to 8 percent in two years’ time, up from current levels of around 5 to 6 percent.

We are comfortable that the restrictions are so far meeting their objective of helping to restrain the demand for housing while supply gradually catches up. In so doing, we believe the restrictions are mitigating the systemic risk of a housing market downturn that becomes more likely as house prices and debt levels become more stretched. We also believe that the LVR restrictions have helped to make banks’ balance sheets more resilient to any adverse housing market shock.

… the timing and extent of interest rate increases required over the coming period will depend on a number of uncertain variables. A big uncertainty is the future path of the exchange rate, which has a major bearing on traded goods prices and overall economic activity. The more downward pressure that the exchange rate exerts on prices and activity, the less pressure will need to be exerted by interest rates.

Full text is here: Update on the New Zealand housing market (and PDF if you prefer).

The NZD is choppy but in a very small range as his remarks are digested by the market. To the extent that the RBNZ is concerned about consumer inflation feeding through from house price inflation, and the extent that the LVR restrictions are helping to ease house price inflation, the message remains the same; the LVR restrictions have had the effect of lessening the need for interest rate rises that would have otherwise been implemented (i.e. quick guide … interest rates won’t go up as much – but they are still going up).