Reserve Bank talks down prospect of another housing boom

House prices rose 4.4% in the past four months and the rising net migration and pick-up in property prices was helping underpin the country's economic recovery, Governor Alan Bollard said. Still, in the resurgence in the sector could threaten household savings and undermine the rebalancing of the economy required to return the economy to sustainable growth.

"We've seen house prices fall peak-to-trough around 10% or 11%, whereas three months ago we were expecting around a 16% fall," Assistant Governor John McDermott said.

"One of the key factors behind that is the limited number of listings, and there's a good chance over spring that that may very well may change."

New Zealand property values improved for the fourth straight month in August, falling 2.8% in the 12 month period compared to a 5% annual decline in the period through July, according to QV Valuations. The average sale price climbed 0.7% to $385,426 last month from a month earlier.

Property has continued to be supported by rising migration and record low interest rates, according ANZ National Bank's eight gauges of property prices, although the bank is uncertain whether the number of people coming to New Zealand will be able to sustain the market as the supply of new housing climbs to meet excessive demand.

Bollard said the domestic mortgage curve steepened as banks raised longer-term fixed rates while cutting floating rates. Still, the effective mortgage rate fell over the past year and is expected to slide further over the 12 to 18 months as existing mortgages and new borrowers shift to lower rates.