New Zealand's housing bubble continues to grow, with increasing scrutiny on the Reserve Bank and how it will continue its micro-management of the heated sector.
The effects of the Reserve Bank's October 2013 loan to value ratio (LVR) restrictions on bank lending is waning, and some bank borrowing costs are now back to levels when the official cash rate (OCR) was at 2.5%.
Speculation is mounting the central bank will not only hike the OCR to quell demand, but look at additional lending restrictions during the year.
Auckland largely drove prices and volumes during 2014, and the release last week of the Real Estate Institute's December data appears set to see a continuation of the same housing issues throughout 2015.
With Reserve Bank interest rates on hold for at least most of the year, and inflation continuing to soften, banks are becoming aggressive with moves to bring down mortgage interest rates, adding fuel to the real estate fire.
Kiwibank's two-year mortgage rate has just been cut to 5.5% and the BNZ is offering three-year fixed at 5.59% - attractive options for those refixing loans or for new entrants.
ASB senior economist Jane Turner said housing demand remained strong and the market was beginning to tighten again, ''mostly in Auckland''.
''However, outside of Auckland, the housing market remains more balanced with house price growth modest.''
Ms Turner said annual house price inflation was running ''steady'' at 6% for December, but Auckland's had accelerated from 9% in November to 13% for December, because supply was tight, which lifted the rate of house price growth.
While house price growth was ''isolated'' to Auckland, the Reserve Bank would be wanting to see an increase in Auckland house construction, to alleviate the imbalance, and the pressure on house prices.
She predicted that during 2015 the Reserve Bank ''may consider fine tuning'' its prudential tool kit, additional to the high-LVR lending restrictions; which she expected would remain in place until at least mid-year.
''[Reserve Bank] possibilities include a more targeted approach to investors or debt-to-income measures,'' she said.
She forecast OCR hikes next December, and another in March next year.
Westpac senior economist Michael Gordon had seen ''the greatest housing market resurgence'', with sales up 27% during the previous two months and prices up 13.5% on a year earlier.
''This confirms our long-held view that the housing market would respond vigorously to low mortgage rates and booming population growth,'' Mr Gordon said.
Ms Turner said the typically quiet December might have got busier for the housing market due to pent-up demand from a later-than-usual spring surge, because of election uncertainty.
''Another factor also potentially lifting demand is the easing in lending rates over the last few months of 2014,'' Ms Turner said.
There had been a decline in fixed term mortgage rates, with a reduction in expectation of further OCR hikes, declining offshore interest rates and competition in the banking sector, she said.
Some borrowing costs were now below those seen before the Reserve Bank lifted the OCR by 100 basis points, she said.
''In addition, the impact of the high-LVR lending restrictions on housing demand appears to be fading with an increase in sales across the board.''
In restricting the banks, the LVR hit the lower end of the market hardest; the less than $400,000 tier, which has seen its overall monthly share of sales decline about 3%-5%.
