Auckland's property boom complicates central bank's next move
Wellington real estate agent Gareth Robins says he's taken more calls from Auckland investors in the past six months than he has in the past six years.
With the housing boom in Auckland, New Zealand's largest city, showing signs of coming to an end, investors there are looking further afield, and they have more buying power than owners in other centers. Since 2007, the average value in Auckland has jumped 70 percent to NZ$926,000 ($630,000); in capital city Wellington, it's gained just 10 percent to NZ$584,000.
"They can come down here and buy three investment properties, and that's what a lot of people are doing," said Robins, who estimates 20 percent of his sales this year have been to cashed- up Aucklanders. "They're a lot more blasé about price, almost like it's not an issue." Auckland's spreading property bonanza is one of the reasons Reserve Bank Governor Graeme Wheeler may tread carefully as he considers cutting interest rates to a fresh record low on Thursday. Even as the case for more monetary stimulus mounts, the bank is wary of fueling demand for housing with lower borrowing costs.
"Sure, Auckland seems to be stabilizing -- but stabilizing at grossly overvalued levels," said Stephen Toplis, head of research at Bank of New Zealand in Wellington, who expects Wheeler to keep rates on hold this year. "The remainder of New Zealand is now picking up a head of steam that is probably considered unwelcome."
While Auckland house prices fell 0.7 percent in the three months through February, and the annual pace of increase slowed to 18 percent from 24 percent in November, prices in other cities are surging, Quotable Value New Zealand data show. House-price inflation accelerated to 22 percent in Hamilton and Tauranga, while in the long-dormant Wellington market, prices gained 4.7 percent in the past three months and 7 percent in the year.
Only two of 17 economists in a Bloomberg survey predict Wheeler will loosen policy on March 10, with the remainder expecting him to hold the official cash rate at 2.5 percent. Financial markets have reduced bets on a cut, pricing a less than 30 percent chance at 5:30 p.m. in Wellington, swaps data compiled by Bloomberg show.
Wheeler is nevertheless expected to reduce the cash rate to 2.25 percent in June, according to a majority of economists. Several see it at 2 percent by the end of the year.
Slumping oil and dairy prices and a firm New Zealand dollar have conspired to keep inflation below the bottom of the RBNZ's 1-3 percent target band for more than a year, and below the 2 percent midpoint since late 2011. Inflation slowed to 0.1 percent in the fourth quarter, the lowest since 1999.