Zealanders with mortgages may have been celebrating the Reserve Bank's decision to cut interest rates this week but BNZ chief economist Tony Alexander has released some sobering facts about debt and housing.
The Reserve Bank cut its official cash rate to 2.5% on Thursday and the market was divided about whether governor Graeme Wheeler would cut further or leave the rate untouched for the foreseeable future.
Mr Alexander is in the camp of the OCR remaining at 2.5%, leaving borrowing costs facing most people in New Zealand at the lowest they have ever been.
"When will the rate go up? Don't bother asking. There is not single forecaster any of us can point to and say they have got their predictions on interest rates generally right since 2007.
"We have all proven that as yet, in the post-global financial crisis environment, we have not regained the ability to predict sustained interest rate changes. The chances are that low interest rates will be around for a large number of years.''
One of Mr Alexander's concerns was about the ratio of mortgage interest costs to income.
At the end of June, the ratio of household debt to income was 154.9%, high but down from 155.4% a year earlier.
The ratio of interest payments to income was 9.3%, up from 8.9% a year earlier but well below levels from many years in the past and helping explain why house prices were so high.
"We borrow as much money as we can to get the best house we can. If interest rates are low, we borrow more.''
The decline in interest rates over the past 25 years accounted for a large part of the rise in house prices and explained why no-one should pay attention to measures showing house prices overvalued when those measures were based upon the past era of higher interest rates.
That was basically every year between the mid-1980s and 2007, he said.
"And remember, every single prediction of house prices falling because of poor affordability or high prices relative to income has been wrong these past three decades.''
There were some key things going on in the wider New Zealand housing market worth watching, Mr Alexander said.
There was a supply shortage in Auckland and not enough builders available to allow the shortage to be eradicated for perhaps a generation.
Prices would rise further.
In the regions, the first wave of Auckland buyers had probably already snapped up the low to mid-priced places sitting unsold or on/off the market for the past three years, he said.
As regional markets got hotter, more locals would join in the buying and house construction would rise.
That would further reduce the number of builders in Auckland.
Eventually, when the economy next had a recession, some regional investors would suffer most through unsold sections, empty speculative properties and the absence of ongoing population growth which Auckland would enjoy, Mr Alexander said.
