The Reserve Bank is watching the housing market, but at this point not so much like a hawk as like a dove.

The December monetary policy statement pencils in no increase in the office cash rate before the first half of 2014.

The flipside is it does not see much relief from the high dollar next year either.

It sees growth picking up to 2.5 to 3 per cent, which is still pretty subdued as recoveries go.


And it is heavily dependant on the stimulus from the rebuild in Canterbury, which the bank now expects to cost $30 billion, of which only $5 billion has happened so far.

That tailwind has to offset some stiff headwinds - the continuing strength of the dollar, household caution as result of the legacy of debt from the last boom and a soft jobs market, and the contractionary effects of the Government's fiscal policy, which is expected to shave 4 per cent off GDP over the next three years.

Perhaps the biggest risk to this outlook is that the housing market will heat up more than the bank expects.

Nationwide house price inflation is expected to peak at about 5 per cent which is about average historically and low compared with the rates we saw during the mid-2000s boom.

Likewise mortgage debt is growing at less than 3 per cent a year, though the pace is picking up. Again, that is not a housing boom sort of number.

But the statement also fires a bit of a warning shot across the banks' bows.

It talks about aggressive competition among the banks which, combined with lower funding costs, has pushed mortgage rates to new lows.

And it notes a tendency towards higher loan-to-value ratios, though very few apparently, over the 90 per cent threshold.

But that bank sees that as being contained by the the fact that houses are already expensive, compared with incomes and rents, and by a fundamental shift in households' attitudes to debt, to the point that we now more or less live within our means instead of spending around $1.08 for very $1 of income during the boom.

The bottom line, though, is a warning that if the housing market continues to gather momentum and that starts to spill over to consumer spending, interest rates will rise sooner than it currently expects.