The New Zealand housing market has been labeled the “canary in the coal mine” by property data company CoreLogic, which says its Australian counterparts are watching the downturn here to see what may happen in their own market.
There were a number of differences between the Kiwi and Australian housing markets, and almost all placed New Zealand’s market in a more precarious spot.
New Zealand house prices jumped more during the pandemic, booming 41% from the lowest point to the highest. Although this was matched in some regional markets in Australia, the national figure was lower, at 26%.
The CoreLogic analysis also pointed out New Zealand started tightening monetary policy earlier, and harder, as the Reserve Bank fought to curb inflation and rein in the overheated property market.
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While New Zealand’s central bank had undertaken seven rate hikes since October, the Australians had done only four, starting in May.
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Senior equity analyst Michael Kenealy on whether New Zealand’s housing market is the canary in the coalmine for international investors.
The official cash rate (OCR) – which influences home loan interest rates – is also far higher in New Zealand, sitting at 3% compared to Australia’s 1.85%.
Kiwis are also facing worse inflation, with the cost of goods and services currently increasing at an annual rate of 7.3%, compared to Australia’s 6.1%.
The Reserve Bank’s comparably early moves to increase the OCR resulted in the market peaking earlier in New Zealand, with prices reaching their highest level in November 2021, where in Australia they kept going up until April.
Unemployment rates in the two countries are almost identical, sitting at 3.4% in Australia and 3.3% in New Zealand.
This isn’t the first time New Zealand has been labeled the canary in the coal minewith an Australian financial services firm putting the label on Auckland back in April.
CoreLogic NZ chief property economist Kelvin Davidson said due to the Reserve Bank’s early action, and the downturn that had occurred, the market was considered a “blueprint” for many market observers and commentators.
“New Zealand has been held up as a canary in the coal mine and people are looking to us as the precedent-setter for inflation and monetary policy and what happens in the housing market,” Davidson said.
CoreLogic Australia research director Tim Lawless pointed out the similarities in market movements during the pandemic.
“Just like New Zealand we’ve seen extreme growth through the cycle, which has largely been driven by a combination of incentivising monetary policy, low interest rates and fiscal policies as well such as JobKeeper, JobSeeker and HomeBuilder, which amplified the building sector, He said.
The largest urban centers provide another data point to compare relative house price falls experienced so far.
Sydney peaked in January and has already fallen -5.2% to the end of July, and Melbourne peaked in February with values now down -3.4%.
By comparison, Auckland and Wellington house values are down about 16%according to CoreLogic New Zealand head of research Nick Goodall.
“Now values have come back -11% nationwide and are starting to fall relatively sharply,” Goodall said.
Rental income divergence
Another key difference between Australia and New Zealand was the outlook for rental incomes.
Australia’s head of research Eliza Owen said tracking rental listings suggesting rents were still going up.
“We can already see capital city values are up 9.1% over the past 12 months. Capital city rents don’t show much of a slow-down so that’s another indicator to us that inflation still has further to go, ”she said.
“When we do start to see an easing in those rental market indicators that might give us a bit of a heads-up that some of those domestic inflationary pressures are starting to ease.”
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Propertyscouts director Ryan Weir speaks to Stuff about the rental market.
On the flip side, in New Zealand there were signs of rent fallingas borders opened and Kiwis left for overseas.
“The draw of New Zealanders going to Australia for greater wages is creating negative migration figures and less pressure on rental demand,” Goodall said.
Davidson said Kiwis may be feeling more pain, more quickly, but there were early signs price falls would be over more quickly as well.
“It seems like we’ve seen the upswing fast and downswing fast and now looking to the end arriving quite fast.
“We’re not sounding the all clear by any means, house prices are still high and there’s stretched affordability, but there’s a sense maybe that people might be looking ahead at this being a buying opportunity.”