Macro Investor: What can NZ tell us about the future of Oz housing?

Last week’s -0.25% cut to official interest rates by the Reserve Bank of Australia (RBA), along with the expectation of further interest rate cuts over the coming year as the commodity boom unwinds, are widely anticipated to provide support to the Australian housing market, resulting in rising prices.

New Zealand offers some useful insights into what might be in stall for the Australian housing market as mortgage rates fall.

Comparisons with New Zealand are appropriate for a number of reasons. New Zealand shares essentially the same banking system as Australia’s, with Australia’s big four banks holding around a 90% share in New Zealand. Both countries offer visa-free entry to the other, and the Closer Economic Relations agreement effectively meshes the two economies. Auckland – the largest city and commercial hub of New Zealand – is closer to the main Australian cities of Melbourne and Sydney than many of the other Australian state capitals. And Australia is New Zealand’s largest trading partner.

Australian house prices have followed a different trajectory to New Zealand’s, peaking almost three years later in mid-to-late 2010, depending on the indices used, and are currently down by around -5% from peak…

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