Source : Business Times – 7 Jul 2009
New Zealand house prices rose for the first time in six quarters, a sign the economy may be starting to recover from the worst recession in more than three decades.
Average prices gained 0.4 per cent in the three months ended June 30 from the preceding quarter when they fell 2.1 per cent, Quotable Value New Zealand Ltd, the government valuation agency, said in an e-mailed report.
The Reserve Bank yesterday said there is scope for home-loan interest rates to fall further. Reserve Bank governor Alan Bollard has cut the official cash rate 5.75 percentage points since July to a record-low 2.5 per cent to help kick-start demand. House prices may keep rising as lower borrowing costs stoke consumer confidence and encourage more people into the property market.
‘Houses prices are pretty much at the bottom,’ pointed out Nick Tuffley, chief economist at ASB Bank Ltd in Auckland. ‘There is a lot more buying demand starting to pop up, and interest rates have a lot to do with it.’
The average variable home-loan interest rate was a 41-year low of 6.4 per cent in May, according to central bank figures. One-year loans are available from the nation’s largest banks at fixed rates as low as 5.5 per cent.
‘Interest rates are on the very stimulatory side,’ said Mr Tuffley. ‘The prospect of further cuts in rates probably looks fairly slim even if the Reserve Bank cuts the cash rate further. The Reserve Bank is no longer in the driver’s seat.’
Parliament Committee Lenders have come under fire from business groups and politicians for failing to lower their home-loan rates by the same amount as the Reserve Bank.
‘Banks should listen carefully to what the Reserve Bank is saying,’ Prime Minister John Key said in Wellington yesterday. ‘We would like to see lower interest rates because it is healthy for the economy.’
Last month, Parliament’s finance and expenditure committee said banks should reduce their lending margins and ‘take on a greater role in sharing the burden of the current recession’. New Zealand’s four largest banks are units of Australian lenders. Last month, Australian Treasurer Wayne Swan said a decision by Commonwealth Bank of Australia to raise its variable mortgage rate was ’selfish’ and hindered the government’s efforts to support the economy.
The Reserve Bank of New Zealand yesterday published an analysis of lending trends and concluded that a large part of its rate cuts had been passed on to borrowers. It said funding costs for banks have increased as deposit rates rise and international borrowing became more expensive.
‘The pricing of floating-rate mortgages appears unusually high over recent months and we believe there is some scope for further reduction in these rates without compromising the viability of this lending,’ the central bank said.
Mr Key said the Reserve Bank was ‘irked’ that lending rates weren’t reduced when it cut the official cash rate by half a percentage point in April, and that banks may have been widening their margins instead of passing benefits on.
New Zealand house prices began falling last year amid the global credit crunch and the onset of a domestic recession. House sales dropped to a record low in January and prices in March were 9.3 per cent less than a year earlier.
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