The Importance of House Prices

Read More

house for saleThe Importance of House Prices

House prices are not only a key indicator of what is happening in an economy but they can also be a trigger for a change in economic conditions. Hence the state of the housing market comes under close scrutiny by the Reserve Bank and other Government officials. There is a very close link between house prices and inflation. This is understandable when you consider that the cost of a mortgage or rent is often the single biggest expense in a household budget. The Consumer Price Index (CPI) measures the changing price of a fixed ‘basket’ of goods and services purchased by households of which a weighting of around 13% is given to rent and house purchase costs. Any change in these costs therefore has a significant effect on inflation, which is measured by the CPI. As house prices go up, there can be other impacts. For existing home owners, there is what is referred to as a ‘wealth effect’. The increase in house values makes people feel wealthier which can cause them to borrow and spend more, thus adding to inflationary pressures. For first home owners, house price increases mean larger mortgages, with the risk that mortgage repayments may become unaffordable, especially as interest rates often rise along with house prices. If home buyers struggling with mortgages quit their homes in sufficient numbers, this can trigger a sudden drop in house prices and a downward spiral in which homes are sold at a loss. Such an event in the USA was a key trigger for the Global Financial Crisis. As the Reserve Bank of New Zealand continues to increase interest rates while maintaining its restrictions on low-deposit loans, it will be interesting to see what impact this has on the housing market. First home buyers should proceed with caution.

Related Articles

Economy
Liz Koh

Budget Winners and Losers

The latest Government budget had something for everyone but while most households will be a few dollars a week better off, there are some clear winners and losers. In the winners’ corner are businesses, those on high incomes, and savers. The biggest losers are property investors who have built large portfolios financed partly by tax rebates.

Read More »

Top Up or Miss Out

The end of June is an important date for KiwiSaver members. The financial year for KiwiSaver runs from 1 July 2009 to 30 June 2010 and if you have contributed at least $1,040 to KiwiSaver during that time, you will be eligible for the full amount of Government tax credit to be paid into your KiwiSaver account in July.

Read More »

Responsible Investing

There is a worldwide trend for investors to want to make a positive contribution to the world by investing in companies that are socially and environmentally responsible. If you are passionate about the effects of climate change, the scarcity of food and water, and social or environmental policies in general, then you will no doubt wish to ensure that the companies in which you invest are going about their business in a manner that is consistent with your views.

Read More »

Helping You Live your retirement To the Max

Keep in touch

Fill in your details and we’ll get back to you in no time.