2021.03.1205:38:00UTC+00New Zealand Housing Market Likely To See Pronounced Correction: IMF

New Zealand housing market is likely to undergo a pronounced correction, the International Monetary Fund cautioned on Friday.

Concluding the Article IV discussions, IMF staff said rising speculative demand for housing, along with historically low interest rates and structural housing supply shortages, is amplifying the housing cycle and heightens financial stability and affordability concerns.

Unsustainable house prices relative to income, a tightening of credit standards, or a sharp rise in mortgage rates could trigger an eventual, pronounced correction.

The IMF called for comprehensive approach in tackling supply-demand imbalances in the housing sector. The staff observed that mitigating near-term housing demand, particularly from investors, would help moderate price pressures.

Further, the staff noted that although the economic activity fell sharply due to the global pandemic, it recovered faster than expected in the second half of 2020. The economy is expected to continue recovering in the near term, though at a more moderate pace.