PHOTO: The New Zealand property market is in a massive ‘corrective’ stage. FILE

New Zealand housing makes an interesting case study, given the Central Bank there started lifting rates last year, following a strong period of credit driven price growth.

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Now the IMF has reported on the state of play, and they highlight the risks in the system. https://www.imf.org/en/Countries/NZL

In its latest review of the New Zealand economy, the IMF has had a close and detailed look at the housing market. The housing market they say constitutes a risk in view of borrowers’ vulnerability to rising mortgage rates, high household debt, and banks’ exposure to housing.

The IMF says that financial stability risks from a sharp downturn in the housing market are limited given high bank capitalisation, “but pockets of vulnerability, particularly amongst recent borrowers, may exist”. “More broadly, there is likely to be a larger impact on consumption through wealth and sentiment effects.

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In a scenario of a marked housing correction, macroeconomic policy support may be needed to avoid second round effects and a pronounced downturn.”

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