In this week's BNZ Weekly Outlook Alexander warns that the global credit collapse has highlighted that the central bankers' view that monetary policy, in the form of higher interest rates, should not be used to combat soaring house prices, is wrong.
"Going forward we should expect central banks to more quickly react to rising asset prices than in the past," he says.
"That means, if you happen to have a view that NZ house prices will appreciably rise over 2010-2011 you had best factor in upside risk for interest rates."
In recent weeks Alexander has suggested that if he were a borrower, he would fix his mortgage rate for three years. However, recent rate increases mean this approach is becoming too expensive when compared to shorter rates. He chided those that did not fix their mortgage rate for seven years at 6.79% back in mid-March as he suggested then.
"If I were in the position of one of those people who for some reason have been sitting believing fixed rates will go back now, then I'd be forced to accept the risks inherent in not fixing three years or more and fix two years at 6.5%. But you should have fixed very long term back in mid-March shouldn't you!" Alexander says.
