New Zealand house sales growth to ease in near term; current account deficit likely narrowed in Q2

The upcoming New Zealand REINZ house sales report for the month of August would be the real evidence of the effect of the tighter loan-to-value ratio limits that the nation’s central bank mentioned in late July, said Westpac in a research note. In the recent months, sales had already decelerated, which might have been partially because of a lack of listings.

The fall in the approvals of mortgage in recent weeks shows that sales are expected to decelerate further in the near-term, added Westpac.  Also, house price growth is also expected to ease in the near term, as it slowed after previous loan-to-value restrictions. But the effect on prices would likely be temporary once again. The willingness of homebuyers to pay depends on factors such as rental yields, borrowing costs and tax treatment.

Meanwhile, the country’s annual current account deficit is likely to have narrowed to 2.6 percent of the GDP in the second quarter, according to Westpac. The starting point in March is also expected to rebound because of an upward revision to education exports. Following a couple of weak quarters, merchandise export volumes increased sharply in the second quarter, more than countering a fall in merchandise terms of trade. In the meantime, solid services exports, led by tourism, keep on underpinning the current account.

“We expect the current account deficit to widen again over the next year, but to remain significantly below its pre-GFC levels”, noted Westpac.