It's worth looking at the New Zealand housing market to see what might be in store for Australia as interest rates decline.
NZ has a similar banking system to Australia, with Australia’s four major banks holding a major share in New Zealand, and the mortgage debt to GDP ratio in both countries being similar, at around 85%. Australia and NZ also have close economic ties, with Australia being New Zealand's biggest trading partner, and both countries enabling easy migration to the other.
Property price growth in Australia and NZ over the past decade is illustrated by the charts below...
NOMINAL HOUSE PRICE GROWTH
REAL HOUSE PRICE GROWTH
After peaking in November 2007, New Zealand nominal property values fell 11% from the 2007 peak to the 2009 trough, then rose for the next few years to be currently back up to 2007 peak values. Australian property values peaked several years later in mid 2010, and are still down 5% from peak. In real terms (adjusted for inflation), NZ prices are 11% below their 2007 peak, and Australian prices are 9% below their 2010 peak.
Interest Rates
The Reserve Bank of New Zealand slashed the NZ Official Cash Rate to 2.5% in 2009 (compared to Australia's current 3.25% OCR), which reduced average NZ standard variable mortgage rates to around 5.80% (compared to Australia's current 6.65% average SVR). This large drop in mortgage rates has helped NZ house prices rise 14% since 2009.
In Australia, the interest rate futures market is predicting our OCR will drop to 2.5% (the same as the current NZ OCR). If we assume the banks pass on half of this cut to borrowers then average Australian SVRs could drop to around 6.29%, with the average discounted SVR dropping to 5.54%. This would be close to the mortgage rates last seen during the depths of the GFC, when Australian house prices rose sharply (by approx 20% in Sydney and 30% in Melbourne).
House Price Growth
For the past four months, Australia has been experiencing a resumption in house price growth, but without an associated recovery in the rate of housing credit growth, or housing finance commitments. A similar phenomenon was also experienced early in the recent NZ housing growth cycle, where a lower volume of housing credit chased an even lower volume of housing transactions, resulting in an increase in average NZ mortgage sizes and rising NZ house prices. However, since 2011, mortgage demand actually accelerated in NZ, with the volume of mortgage approvals rising by around 50% and the value of approvals rising by around 85%. Average NZ mortgage sizes are up almost 20% and house prices are up another 7%. This suggests that in NZ, the early slow growth phase may have fed on itself, a virtuous circle whereby potential buyers noticed the rising prices (on low volumes), woke up to the fact that house prices were on the move again, and flocked back into the market on the back of low interest rates.
The question is whether Australia might experience a similar fate, especially in the event that our mortgage rates do continue to decline?
You know that if rates drop to that level then investors will flood the market, rents will come down and yes, prices may rise. My question is, how will that growth be sustained when yields drop and the demographic effect will be headwinds, not tailwinds like before.
You know that if rates drop to that level then investors will flood the market, rents will come down and yes, prices may rise. My question is, how will that growth be sustained when yields drop and the demographic effect will be headwinds, not tailwinds like before.
Wrong. As usual your view is far too simplistic. We'll see decreased affordability around cities and major centers of employment which will continue to drive up rents. Simultaneously, small town property will continue to stagnate due to employment issues, but rents will remain solid although they may also stagnate in these areas. There is no one size fits all prediction that applies universally.
Auckland is seeing price increases but it's being driven from foreign investment not locals buying - so I was told by lots of people as I toured around
Lots of job losses going on there at the moment, people in the mining sector even loosing their jobs
On top of that there has been a lot of public anger over farms / food production being bought up by China and the people are demanding limitations to foreign investment - it will be interesting to see how much the NZ government panders to this
I have friends who recently sold up in Sydney and went to live there for a better life style. They seem very happy. They have more work than they need and have been turning it away (part time marketing work) and it seems that part time stuff is plentiful but that full time is harder to secure as the sentiment there doesn't seem the best
New Zealand property values extended their gains last month, and have recovered the losses seen after the global financial crisis and the bursting of the country's housing bubble, according to government valuer Quotable Value.
However, values are still 12 per cent below the peak after accounting for inflation.
National property values rose 1.8 per cent in the three months ended September 30 and are up 5.3 per cent on an annual basis, edging above the 2007 peak in late 2007.
"The number of sales in the last few months is higher than in 2010 and 2011, the years since the global financial crisis have been characterised by very low activity," QV research director Jonno Ingerson said in a statement.
"There is a lack of listings in many areas, particularly Auckland, which is also likely to be constraining sales numbers."
The official government figures come out after Real Estate Institute data yesterday showed the volume of sales and median sale price continued to rise last month in the face of a listings shortage.
Massey University data today showed an improvement in national housing affordability, though Auckland's market was becoming more unaffordable.
"In general, buyers are acting carefully, doing their research and not overpaying," Ingerson said. "This is despite the lack of listings, which would ordinarily mean increased competition and prices."
QV's figures showed property values rose 2.8 per cent in Auckland over a rolling three month period ended September 30, for an annual gain of 7.2 per cent. The average sale price rose to $575,797 in the September quarter.
Property values were little changed in Wellington in the quarter, and are up 2.3 per cent on the year. Hamilton values rose an annual 4.1 per cent and were up 1.3 per cent in the three month period, while Tauranga property values were flat in the quarter and up 1.1 per cent on the year.
Christchurch property values rose 1.8 per cent in the three month period, and are up 6.6 per cent on the year, while Dunedin values advanced 2 per cent in the quarter for an annual gain of 5.1 per cent.
Meanwhile, online auction site Trade Me today published rental figures showing a 4 per cent fall in demand for rental properties, even as supply rose 8 per cent and prices advanced 3 per cent.
Auckland is seeing price increases but it's being driven from foreign investment not locals buying - so I was told by lots of people as I toured around
Lots of job losses going on there at the moment, people in the mining sector even loosing their jobs
On top of that there has been a lot of public anger over farms / food production being bought up by China and the people are demanding limitations to foreign investment - it will be interesting to see how much the NZ government panders to this
I have friends who recently sold up in Sydney and went to live there for a better life style. They seem very happy. They have more work than they need and have been turning it away (part time marketing work) and it seems that part time stuff is plentiful but that full time is harder to secure as the sentiment there doesn't seem the best
Catweasel say a more the fascinate is a where a NZSX50 getting its fuel from. As it a speak, it a sitting on 18.35% gain over a 52 week. Make a mouse house price look the rather sedate.
Wrong. As usual your view is far too simplistic. We'll see decreased affordability around cities and major centers of employment which will continue to drive up rents. Simultaneously, small town property will continue to stagnate due to employment issues, but rents will remain solid although they may also stagnate in these areas. There is no one size fits all prediction that applies universally.
I agree. As rates drop business investment will increase, leading to higher wages that improve the ability of people to compete for well located and high quality property (both rental and buying), and thus prices will increase.
I agree. As rates drop business investment will increase, leading to higher wages that improve the ability of people to compete for well located and high quality property (both rental and buying), and thus prices will increase.
Catweasel laugh. Back to boom boom across a Tasman. It all the good.
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it might be time to put ones paws together and have a look at this 
