Fear of slump contagion

Sydney's house prices rose nearly 70% between 2012 and late 2017 but since then have declined by...
Sydney's house prices rose nearly 70% between 2012 and late 2017 but since then have declined by about 10%. Median prices now sit at about $A800,000 ($NZ838,500); pictured, Bondi, Eastern Sydney.PHOTO: GETTY IMAGES
Falling Australian house prices could dampen New Zealand prices, but that is likely to be counterbalanced by lower interest rates, elevated immigration and housing shortages here.

Since the 2007-08 global financial crisis the relationship between New Zealand and Australian house prices had tightened in the face of common influences, ASB senior economist Mark Smith said.

"We find that movements in New Zealand and Australian house prices tend to be linked," he said.

However, Mr Smith said, evidence of a long-run relationship between transtasman house price levels was "a little murkier", but the relationship had tightened since the global financial crisis had significant effects on both of the trading partners' economies.

"It may be that determinants of New Zealand and Australian house prices, including mortgage interest rates, may be moving more in sync with each other," Mr Smith said.

New Zealand price increases had significantly outpaced those in Australia during recent decades.

New Zealand prices increased by nearly five-fold since the early 1990s, against close to three-fold for Australia, and during the past decade were up by 80%, versus a 45% gain for Australia.

However, Mr Smith noted there are some key differences between the two housing markets.

That was probably due to much higher average incomes, the median dwelling price in Australia was around the $A800,000 ($NZ838,500) mark, considerably above the New Zealand median of $560,000.

Sydney house price declines have been most acute, down 10% on the peak in July 2017.

He said the more sizeable percentage increases in New Zealand house prices were consistent with Australia building more houses on a per-capita basis.

"New Zealand consent issuance has stepped up considerably of late, but it still pales in comparison to Australia," he said.

New Zealand builds about seven dwellings per 1000 people and Australia about nine per 1000.

The recent Australian price declines had to be put into context given their previous strong gains, rising by more than 40% from early 2012 to late 2017.

Sydney prices rose nearly 75% during that period, with Melbourne prices up 60%.

Mr Smith said New Zealand house price movements had "considerable persistence, taking up to three years for an upswing "to run out of puff", and also tended to respond to Australian house prices, with a peak impact after about six months.

"Lower Australian house prices also would also dampen New Zealand interest rates and consent issuance and support more net immigration into New Zealand, which is likely to indirectly support New Zealand house prices," Mr Smith said.


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