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Floating mortgage rates could be between 7% and 8% in two years and the Reserve Bank's loan-to-value ratios are likely to remain until at least the end of the year.
Reserve Bank deputy governor Grant Spencer said in a speech yesterday pressures in the New Zealand housing market were easing gradually but risks remained.
''There are many parts to the housing market equation - and many risks. Probably the major risk at present is the outlook for net immigration, in part due to reduced departures of New Zealand citizens.''
The Reserve Bank was forecasting net immigration to reduce gradually as economic conditions improved in Australia, he said.
The bank had started raising the official cash rate (OCR), with the aim of forestalling general inflation pressures in the broader economy. Floating mortgage rates could be at 7% to 8% in two years' time, closer to their average in the past 10 years, Mr Spencer said.
The bank believed the loan-to-value ratios (LVRs) were achieving their purpose. The financial system was less vulnerable to an adverse housing shock and banks were now less exposed to potential credit losses as the interest rate cycle turned upwards.
Before removing the LVRs, the bank wanted to be confident the housing market was responding to interest rate increases and immigration pressures were not causing a resurgence of house price pressures.
''It will take some time to gain this assurance. At this stage, we consider the earliest date for beginning to remove LVRs is likely to be late in the year,'' he said.
ASB economist Christina Leung said the housing demand/supply imbalance was again highlighted as the key driver of strong house price inflation - particularly in Christchurch and Auckland.
Residential construction in those two regions ramping up in recent months had helped alleviate some of the supply constraints.
However, there was still a large volume of residential construction required. Mr Spencer identified net migration inflows as a key risk to the housing market.
The ASB expected annual migration to peak at about 40,000 later this year, Ms Leung said.
''With the annual flow reaching about 32,000 in March, the Reserve Bank will almost certainly need to lift its migration forecasts at the June Monetary Policy Statement and that will flow through to housing and broader inflation forecasts.''
Westpac chief economist Dominick Stephens expected the Reserve Bank to lift the OCR again in June but believed the central bank would then make it clear the OCR would not rise again in July.
''In our view, September and December would then become the most likely dates for OCR hikes over the remainder of the year.''
Some would argue against a September OCR rise on the basis the bank would be loath to change the OCR nine days before a general election.
But it had lifted rates in 1999 and 2002 close to the elections.