With the Reserve Bank's increases to the cash rate last year and subsequent increases across all lending institutions for mortgages, the dominance of residential rental property as the standout preference amongst New Zealand investors may be coming to an end.
The long-awaited New Zealand dollar decline is coming. The huge investor inflows over 2005 will see to that.
The New Zealand dollar remains a downward-trending currency. The downward direction is implied by greater certainty about a slow economy.
These are not the conditions that cause a big fall in house prices. I think it will fizzle out. Gradually the interest rate impost will hit people's pockets. Gradually the new houses and apartments still being built will affect the supply/demand balance.
In other words, another RBNZ tightening cannot be dismissed yet. It is spending, not production, that is the target issue at present. And the factor that will determine whether another tightening is required.
Evaluating the data available, the average house price is still increasing at a rate similar to most of 2004 and 2005.
