House prices have risen substantially as a ratio to income over the past five years. As longer term interest rates have risen recently in New Zealand, and housing turnover has slowed, the elevated level of house prices has looked increasingly unsustainable.
One interpretation of recent housing cycles is that a “glut of capital” lowered interest rates and putting upward pressure on house prices, creating a persistent tail wind for some economies. As houses change hands and are more heavily borrowed against, equity is withdrawn by the seller, who may often choose to spend the money.