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New Zealand households continue to show resilience following significant price rises and falls seen over the last four years, as housing market activity is currently subdued, with interest rates still at elevated levels, the Reserve Bank of New Zealand said.
"House prices remain a stretch for many prospective buyers and are hovering around the top of our estimate of sustainable levels. Banks are currently facing competitive pressures to attract a limited pool of creditworthy borrowers," said the bank's Director of Financial Stability Assessment and Strategy Kerry Watt.
Borrowers' capacity to take on more debt is increasing as monetary policy is eased. However, the weaker economic environment means households are exercising caution, Watt said, adding the level of interest rates is still high by recent standards and lending growth has been low over the past year. It is uncertain when and how much demand for new borrowing will pick up.
Residential property makes up over half of New Zealand households' wealth and the housing market directly influences financial stability, affects consumer confidence, and shapes economic growth, said a bank statement, adding understanding the dynamics of the housing market is crucial for the bank, as home loans account for more than 60 per cent of total bank lending.
"Ensuring that we remain vigilant in monitoring these trends and market dynamics is essential for safeguarding the financial system and broader economy," Watt said, adding government policy changes are underway to increase long-term supply responsiveness in the housing market.
Better supply responses to housing demand will help moderate future house price cycles and improve housing affordability, he said, adding debt-to-income restrictions will also play an important role in moderating demand cycles and reducing the buildup of risks.
