New Zealand the “canary in the coal mine” for Australian property

Australian homeowners can look to New Zealand’s property market as the “canary in the coal mine” to determine what kind of impact rate hikes might have on prices, according to experts.

The Reserve Bank of New Zealand (RBNZ) has increased the official cash rate (OCR) seven times, from a historic low of 0.25 per cent to 3 per cent, following its most recent 50 basis point increase at the August meeting.

This has had a direct impact on the property market, causing high price growth to dry up.

CoreLogic NZ Chief Property Economist Kelvin Davidson said New Zealand’s strategy, and its impact on the housing market, can be considered a ‘blueprint’ for market observers and property owners in Australia.

“NZ has been held up as a canary in the coal mine and people are looking to us as the precedence setter for inflation and monetary policy and what happens in the housing market,” Mr Davidson said.

New Zealand’s House Price Index grew 41 per cent before peaking nationally in November 2021, and then gradually fell, which was likely to continue until affordability improved according to Mr Davidson.

Research Director at CoreLogic Australia, Tim Lawless said Australian house prices have been on a similar trajectory, increasing 26 per cent through the pandemic, with more significant growth of 42 per cent in regional markets.

“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,” Mr Lawless said.

“Across the capital cities, Sydney peaked in January and has already fallen 5.2 per cent to the end of July, Melbourne peaked in February with values down 3.4 per cent, with a softer growth cycle due to more disruption from long and more frequent lockdowns.”

In terms of home prices, there are also a number of similarities between the Auckland and Sydney property markets.

Mr Davidson said the portion of income required to service a new mortgage in Sydney hit a high of 51.3 per cent in Q1 2022, while saving for a 20 per cent deposit takes on average 14.1 years, and higher again for a house. 

“Mortgages are absorbing a high proportion of income in Auckland, it still requires 55 per cent for someone on an average income to buy the average property, using a 20 per cent deposit,” he said. 

“New home owners are using quite a bit of income and it takes 14 years on average to save a deposit, which has seen the average age of first home buyers sneak up over time.”

Despite both the Reserve Bank of Australia (RBA) and RBNZ both intent on continuing to raise interest rates higher than their current levels, Mr Davidson said there had been some interesting developments in August and a change in sentiment.

“Everything in this environment is condensed,” he said. 

“There is a sense here that we’re getting to the end point quite quickly.”

Mr Davison said New Zealand banks had started to change their outlook on interest rates as well.

“We’ve seen mortgage rates cut in the past couple of weeks, and quite sharply too, and across one-year and two-year terms,” he said.

“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.”

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.