House prices are increasing at 13 percent per annum nationally, and at 15–20 percent in Auckland and close-by regions. Evidence from housing cycles in several advanced economies suggests that the longer this continues, the more likely there will be a severe correction. The Reserve Bank is mandated to promote the soundness and efficiency of the financial system.
Our concern is that a severe housing correction would pose real risks for financial system stability and the broader economy. The banks are heavily exposed to housing with mortgages making up around 55 percent of total assets. Household debt, at 163 percent of household income, is at a record level. Many domestic and international factors are contributing to the strength of the market.