NZ house prices could follow Australia's down: ASB

Monday 26th November 2018

Australian house prices are falling and prices here tend to follow suit with a peak impact after about six months, according to ASB Bank economist Mark Smith.

Australian house prices are down about 3 percent from their October 2017 peak with the declines being most acute in the major centres. Sydney prices have fallen about 7.5 percent from their June 2017 peak and Melbourne prices are down about 5 percent, Smith says.

The latest Real Estate Institute of New Zealand’s house price index shows prices nationally rose 3.8 percent in the year ended October but fell 0.4 percent in Auckland. Excluding Auckland, the index was 7.9 percent higher than a year earlier.

Smith says New Zealand house prices have tended to broadly track those in Australia, reflecting similar demand and supply-side determinants.

“Given the falls evident in Australia, the concern is that similar weakness could be evident across this side of the Tasman and that overall New Zealand house prices fall,” he said.

“To date, New Zealand house prices are still going up, albeit modestly – there have been modest falls in Auckland house prices since the start of the year.”

Still-elevated net migration and low nominal mortgage interest rates should temper any price declines on this side of the Tasman, he said.

The Reserve Bank of Australia has been as watchful as its New Zealand counterpart and their concerns have been very similar. The RBA's November statement on monetary policy cited various factors, such as stretched affordability, slowing investor demand and reduced demand from foreign buyers, given new restrictions on buying established dwellings.

“The recent declines to Australian house prices need to be put into context, given previous strong gains,” Smith said.

For example, Australia-wide house prices rose more than 40 percent from early 2012 to late 2017 with Sydney prices rising almost 75 percent and those in Melbourne up 60 percent.

But New Zealand house price growth has greatly outstripped that of Australia, rising almost five-fold since the early 1990s and by 80 percent during the past decade. By comparison, prices in Australia rose three-fold since the early 1990s and 45 percent in the past decade.

Consents to build new houses, particularly in Auckland, have stepped up considerably. Statistics New Zealand data shows 32,548 consents were granted in the year ended September with 12,945 in the Auckland region.

That’s up from 19,775 nationwide in the same period five years ago.

But that increase pales in comparison to the sizeable increases in consents in Sydney where they are running at about nine per 1,000 people, compared to about 6.5 per 1,000 people here.

“Not surprisingly, Auckland house price increases have outstripped those in Sydney,” Smith said.

(BusinessDesk)

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