A five-year boom in New Zealand's housing market looked to be drawing to a close last month as the weight of four interest rate rises this year finally began to bear on buyer sentiment and drive sales' volumes down to a seven-year low.
But with the Official Cash Rate already raised by the Reserve Bank of New Zealand to 8.25 per cent, in a bid to combat inflation in the import-dependent economy and mortgage rates at above 10 per cent, the full cost of the credit-fuelled housing expansion may yet have to be felt in the wider marketplace.
'In the medium-term, we argued to clients, New Zealand's problem is the same as Australia's,' says HSBC Australia and New Zealand chief economist John Edwards.
'Both have enjoyed long running expansions, both have unemployment down to levels not seen in decades, both find the global economy congenial, both are operating at the limits of their capacity, and neither can reasonably expect growth to markedly slow.'
But, markedly or not, growth is now forecast to slow in the case of New Zealand and business expects more rate rises.
The consensus forecast on economic growth, polled last month by the New Zealand Institute for Economic Research [NZIER], show that forecasters expect annual average real GDP growth for the year to the end of March 2008 to be 2.4 per cent, down from expectations of 2.5 per cent in the previous survey. Forecast growth for the year to the end of March 2009 is now revised down to 2 per cent.
