Interest rate relief remains way off

Although the Reserve Bank is presently having success slowing housing activity – higher mortgage rates are flowing through into the housing market and have started to bite, the housing market has slowed, and borrowing growth is moderating – the slowdown needs to broaden beyond the housing market before it can relax.

Despite the housing market moving in the right direction for the Reserve Bank, inflation risks are rising, says ANZ, due to government stimulus and booming commodity prices such as in the dairy sector.

“There is nowhere to hide in the current interest rate environment,” says ANZ.

“We now expect the start of the Reserve Bank’s easing cycle in late 2008.”

Meanwhile the real estate market is still supported by abundant liquidity and restricted supply. But affordability remains at extremely expensive levels, and high mortgage rates are having an impact on activity, according to ANZ housing market gauges.

Price increases are showing signs of slowing; and in line with slowing migration inflows, market supply-demand balance is close to neutral. Sales volumes are falling and building consent issuance has been stable.

Household indebtedness and the debt-servicing burden keep hitting new highs and show no signs of consolidating yet.