House prices

The need for macroprudential regulation (or, more hand-wavingly, a parental styled intervention into markets by an external referee, which is what perhaps many of us having in mind on financial stability grounds when discussing) in NZ appears warranted, as it does in Aus, to our minds.


You can see why the RBNZ is keen to raise rates, and you can see why (domestically) the treasurer is keen to support limits to LTI lending.

Note also, the near unanimity amongst economists that the US housing market was in a bubble in 2004-2006. Well, the US data looked like the below. The point, isn’t so much whether the US finds itself once again in a bubble, but rather to compare and contrast how unremarkable the US data looks, when compared to Australia or New Zealand.


To our minds, anything that acts to take the froth (which we believe is present) in housing is, generally speaking, a net positive to financial stability over the longer run (provided it doesn’t “pop” the bubble, causing a disorderly unwind), however we see it as a material overhang to bank share prices, which have rallied on a) low rates and b) mortgages going out the door and c) low defaults on those mortgages.

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