This week, a report was released by the research division of BNZ covering house prices and how the current monetary policy is creating a wealth effect. Spending, particularly by Kiwis locally, is increasing, raising concerns that house prices may already be overvalued.
As central banks continue to cut interest rates, the lower cost of funds stimulates economic activity and business investment. More potential projects are initiated during low-interest rate periods, yielding positive returns. Additionally, lower interest rates often keep the currency lower, encouraging locally produced products.
Low-interest rates are also contributing to the rise in housing prices, as more people can afford to purchase due to favorable interest rates.