Owners spend up housing equity

Thursday 30 September 2004

Red-hot house prices have fuelled a multibillion-dollar spending spree in the past year as homeowners tapped into their new-found property wealth to pay for cars, holidays and home appliances.

By The Landlord

A report published by Westpac yesterday found the net value of New Zealand homes had risen by $89 billion since 2001, largely because of booming house prices.

As a result, Westpac estimated that homeowners borrowed up to $2.7 billion against the value of their homes in the year to June for a spend-up which powered strong economic growth.

The Reserve Bank has increased official cash interest rates five times this year to combat just this type of housing-market-fuelled consumer spending that is threatening to reignite inflation. At least one more interest rate rise is expected this year, pushing home mortgage rates up toward 9 per cent.

Westpac senior economist Nick Tuffley said compared with smaller house price booms in the 1990s, this peak had shown a "dramatic tapping into the equity windfall" by homeowners.

According to the report, a $1 increase in New Zealand's housing wealth increases annual household spending by about 8 cents, compared with 7c in Australia and 5c in the United States.

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