The International Monetary Fund has sounded a warning on the possibility of a housing bubble destabilising the Kiwi economy.
In its annual report card, the IMF noted that household credit growth, housing market turnover and house price inflation had all picked up, especially in Auckland, where supply constraints were keeping the market hot.
It said that, combined with a relaxation of mortgage lending criteria by the banks, could create a bubble that would leave the country exposed to economic shocks caused by a slowdown in Australia or China’s economies.
"In these circumstances there is an emerging risk that sustained rapid price growth could give rise to expectations-driven, self-reinforcing demand dynamics and price overshooting," it said. "A shock to household incomes or to borrowing costs could cause a sudden price correction, reducing consumer confidence, worsening banks' balance sheets, and impacting overall economic activity."
It said the macroprudential tools being considered by the Reserve Bank would help. But they should be used infrequently and carefully.
Source: Landlords.co.nzcomments powered by Disqus