The Reserve Bank of New Zealand has forecast annual house price inflation will hit 12% by the March quarter of next year before easing back as the combined effects of weak credit growth and poor affordability take some heat out of the market. The Reserve Bank said it was relying for now on higher long term market interest rates, the high New Zealand dollar and a tighter government budget to take the steam out of the economy. It held the Official Cash Rate at 2.5% and said it may hike the rate around the middle of 2010, which is marginally earlier than previous pledges to hold it until the second half of 2010. "Recent quarterly rates of house price inflation are expected to continue over the next six months, with annual house prices inflation forecast to reach double digits by March next year," the RBNZ said in its December quarter monetary policy statement. "Credit does not seem to be constraining housing activity by as much as previously assumed," the bank said. "Low mortgage rates and strong population growth, driven by a net inflow of permanent and long term migrants support this near term house price forecast," it said.
"However, we believe this initial recovery in house prices is unlikely to continue with such momentum. Low mortgage rates are likely to be temporary and a recovering Australian economy is expected to cause permanent and long-term departures to increase. Also, the high cost of houses relative to household income will limit price rises," the Reserve Bank said. It forecast annual house price inflation would ease to 2% in 2011.
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