This Month we are emphasising on the Differences in our Finance Market vs Across the Ditch!

During the pandemic, both New Zealand and Australia saw very fast increases in house prices. And last year, both countries saw prices fall as interest rates started to rise. Australian house prices however are now on the rise, with New Zealand continuing to see declines. Does this mean that New Zealand house price increases are just around the corner? Or is there something fundamentally different to New Zealand property markets that will hold back a turn in market conditions.

1. The Reserve Bank of New Zealand has been far more aggressive on monetary policy

Central banks around the world have taken varying approaches to controlling inflation. A key difference between the Reserve Bank of New Zealand (RBNZ) and the Reserve Bank of Australia (RBA) is the level of aggression in trying to tame inflation. RBNZ has moved a lot faster at raising rates than the RBA. As a result, price falls have been greater in New Zealand than what has been seen in Australia.

Like Australia, New Zealand is likely close to its interest rate peak. This will be positive for house prices.

2. Population growth is weaker in New Zealand

In both New Zealand and Australia, we saw population declines during the pandemic, driven by very strong restrictions to entry. Since then, Australia’s population growth has gone back to pre-pandemic levels. This has been a key driver of price and rental growth – there are now too few homes for buyers and renters. In comparison, New Zealand’s population growth has been more subdued in comparison.

Migration to New Zealand however is starting to pick up again and is expected to accelerate more this year. While this will put pressure on housing demand, it will also assist some businesses that are struggling to find workers.

3. New Zealand economy is contracting

More aggressive monetary policy has had a much greater impact on slowing the economy in New Zealand compared to Australia. There is now a real risk that New Zealand will go into recession. If this is the case, ideally the Reserve Bank of New Zealand will be able to move quickly to reduce interest rates and avoid large rises in unemployment. It however may not be possible if inflation remains high. There is a lot of uncertainty around this but it is the main factor that has the potential to keep house price subdued longer.

We trust that this gives all clients a better insight on the NZ Finance market vs Australia…which we are continually monitoring, as it does correlate to changes in our market.