The Wall Street Journal (WSJ) has published an interesting report on the sychronised house price busts taking place across Australia, New Zealand and Canada, which follows the world’s biggest price booms in the years leading up to the pandemic.
According to Oxford Economics, “home prices in Australia, New Zealand and Canada are up 532%, 602% and 331%” since 1990, versus 289% growth for the United States.
However, unlike the United States “where people often have long-term, fixed-rate mortgages that are protected against rate increases”, these nations are far more sensitive to the aggressive monetary tightening being pursued by central banks.
Accordingly, Oxford Economics believes Australia, New Zealand and Canada are among the markets most at risk for large house price declines. It tips home prices in Canada could fall 30% and New Zealand prices could drop 20%. Whereas recently released documents from the Reserve Bank of Australia show that house prices in Australia could plunge 20%.
The WSJ notes that the impact of rate rises will be hardest felt in 2023 across these three nations as large numbers of borrowers on cheap short-term fixed rates are reset to double or triple mortgage rates.
Australia is especially exposed as it has the highest share of variable rate mortgages in the world, with the rest on short-term fixed rates that will expire in 2023 and 2024.
This is why Chris Joye, chief investment officer at Coolabah Capital, describes Australia’s housing market as “a harbinger of what awaits the rest of the world” and is “certain to suffer a record drawdown”.
Likewise, in New Zealand “around 45% of home loans end their fixed-rate period within 12 months”, according to CoreLogic, and borrowers may face “one-year fixed-mortgage rates [of] 7%, which would be unaffordable for many homeowners and could force them to sell rather than refinance”.
The WSJ concludes by saying that “even if a crisis isn’t in the cards, the outlook for many homeowners is grim”.
After experiencing record house price booms on the back of rock bottom rates, Australia, New Zealand and Canada now face record busts as monetary conditions tighten at their fastest pace on record.
Pass the popcorn!
