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Australian housing set to tank like New Zealand


With the RBA hiking rates three times already this year, the cash rate is sitting at 1.35 per cent. At this point, it’s pretty much guaranteed that the RBA will move again and again, in a bid to curb inflation.

Forecasts are for another 25bps rate rise in August, September and November, taking the cash rate to 2.10 per cent by the end of year. If these predictions come true, a mortgage owner with the average Australian mortgage of $615,000 will be out of pocket by $991 every year based on a 30-year-loan, at a variable interest rate of 3.93 per cent.

So, what does that mean for the Australian property market?

  • Experts have been pointing to New Zealand as a guide, given that it is a little ahead of us, economically. While we’re only just feeling the stress from three consecutive rises in interest rates, the Kiwis first started raising rates in October 2021, when the RBNZ upped the cash rate by 25bps. It followed up with another four more rises and another 50bps expected this week, taking the cash rate to 2.5 percent.

    And so far, New Zealand house prices have fallen back to the same levels as November 2021, as rising interest rates and credit constraints start to bite. That means NZ house prices have fallen by roughly 7-8 percent. The latest QV House Price Index showed the average home decreased in value by 2.2 percent nationally over the past three-month period to the end of May with the national average value now sitting at NZ$1,030,221.

    When it comes to countries like Australia, there is no better comparison candidate than New Zealand. We share many things with our close neighbour; from trade and resources to tourism and migration, there are many similarities. In that respect, we can expect similar house price falls to that of Auckland and Wellington in Sydney and Melbourne.

    If that’s the case, the path for Australia’s property prices is fairly clear-cut. We should follow suit and with the same trend as the Kiwis. According to media sources, house prices in New Zealand have fallen by 7.8 per cent since October/November 2021, with Auckland down 11.7 per cent and Wellington down 13.5 per cent.

    However, there are one or two differences with the New Zealand property market. Firstly, the property boom in NZ was a lot bigger than Australia’s, due to higher levels of leverage. House prices increased by 45.6 per cent in just 18 months, May 2020 – November 2021 compared to Australia’s in the two years to December 2021. Despite an initial dip, housing values in Australia rose 24.6 per cent between the end of March 2020 and February 2022.

    The other difference is that the Ardern government ended negative-gearing to help tackle the booming property market. These differences that led to a faster rising property market can mean that the New Zealand property market will fall harder.

     CountryPrice-to-rent ratioPrice-to-income ratioReal price gwthNominal price gwthCredit gwth
    1New Zealand156.8143.927.60%23.10%1.50%
    2Czech Republic169.7140.925.80%20.20%2.40%

    Bloomberg Economics released its list of the world’s riskiest housing markets that are most vulnerable to a house price crash. Not surprisingly, New Zealand took out the first spot, with Australia in fourth place. The Kiwis say house prices will need to fall some 30 per cent to be at pre-Covid levels.

    While 30 per cent seems extreme, it should be our worst-case scenario if we are to mirror the falls in New Zealand. At the moment though, the NZ market is down 7 per cent at a cash rate of 2.5 per cent including an expected 50bps rate rise this week. NZ house prices are forecast to drop 18 per cent by year’s end. The RBNZ projects the cash rate will double to 4.0 per cent over the next year and remain there into 2024.

    Australia’s cash rate is sitting at 1.35 per cent with forecasts of 2.10 per cent by year’s end. Off the cuff, if we follow New Zealand, we could be expecting worst-case scenario falls of up to 7 per cent by year’s end and 18 per cent by mid-to-end 2023. Time will tell.

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