Capital Economics: Aus and NZ to lead global housing bust

Capital Economics’ senior economic adviser, Vicky Redwood, has tipped house prices to fall across several developed nations.

House prices in New Zealand are forecast to fall by 20% peak-to-trough, whereas is Australia prices are tipped to fall by 15%. 10% peak-to-trough falls are predicted for Canada and Sweden, whereas UK and Norway house prices are tipped to fall by 5%:

“House price inflation in these countries is already easing. Australia, New Zealand and Canada have seen outright monthly falls in prices. There are also signs of a slowdown in housing demand and sales.

“We have now pencilled in house price falls over the next year or two, ranging between 5% and 20%, in New Zealand, Australia, Canada, Sweden, the UK and Norway.

“And the risks are skewed towards even bigger falls.

“After all, even these drops will reverse only part of the rise seen over the past couple of years. And interest rates may rise further than we expect – in which case, price falls would spread to other countries including the US. (We currently expect house price inflation there to slow to zero.)”

Peak-to-trough fall in global house prices

Capital Economics notes that the fall in house prices will drag on economic activity. It also “expects rates in Australia and New Zealand to fall by end-2023” – something MB has also suggested will happen.

While New Zealand’s monetary tightening started six months earlier than Australia’s, unlike Australia the majority of mortgages in New Zealand are fixed rate not floating. This means that there should be a faster transmission between rising interest rates, mortgage repayments and house prices in Australia than most other economies (including New Zealand).

Unconventional Economist

Comments

    • Strange EconomicsMEMBER

      Bah. Big deal. Even if gets down 15% worst case, it only takes out the last few buyers. Not even a good correction, before the govt runs to the rescue and immigration floods back.

      Everyone else is still up 100% in 5 years.
      If interest rates go to 4% then rental yield is fair at 5% (with 1% cost) . Yields are 2% after costs currently.as the renters can’t pay more than 30% of their income.
      Property would have to drop 50% to be fair value on yield of 5 % after costs(if rents are 30% of median after tax income)

      The Stockmarket falls by 25 % once a year.

      • You beat me to it, Frank.

        If we see the house market correct by 75% or thereabouts it will have some impact. A 15% fall takes us back to the middle of 2021, and is just negative sideways movement.

      • Strange EconomicsMEMBER

        Yes you are right, back to Jan 2021 (a further 50% drop is still needed as overpriced)
        Anyway Correction peak of 2% before the LNP-Lite govt panics, and FHB grants kick in, immigration, etc.

  1. The Travelling PhantomMEMBER

    Just announced the fair work lifted minimum wage 5.2% better what Albo was asking for!!!

    • Leroy Huggins

      It will be eaten by the inflation the wage rise itself will cause, so in other words, will do precisely nothing.
      Workers would enjoy a meaningful benefit from cutting migration, but Labor will do the opposite.
      Labor are anti-workers, pro their replacement. There is no getting away from the fact.

  2. I don’t get all the concern. Prices went up 25% last year. 15% down doesn’t even erase those gains, it just makes them somewhat reasonable. The housing market has been over-inflated for 15+ years, falls of 40% would probably be needed to put us back on the traditional CPI linked rises that we had until the 90s.

    Bring it on! The alternative is feudalism and no-one, except the 1% want that.

    • BackwardArseCountryMEMBER

      That’s gold really isn’t it! Whats worse people will be paying 5%-7% on that non erased property value. Everyone gets a little bit of the shit to share!

    • In a bust you get overshoot. That would mean the market goes sub 3x median income, with income declining due to recession/depression. How much will housing cost when the banks are bust and house prices are still falling? Prices are set by credit availability and interest cost. And interest costs are high in a declining market due to the high risk of default.

      • On that basis, houses have to be sold for peanuts since hardly anyone can get finance.

        Looked at cynically, this really means very large corporates with access to cheap money will hoover up houses as they have in the USA. Blackstone Group, the world’s largest real-estate investor, created after a company called Treehouse Group was folded into Blackstone, then renamed in 2012, has been purchasing $150 million worth of houses per week.

        • Didn’t the foul, lying, horse faced witch with giant teeth from NZ meet with the head honcho of Blackrock while she was in the US recently?

    • I’m with you Warrick!

      In Southern suburbs of Brisbane prices rose more like 40%.

      How is that remotely sustainable. This country is broken.

      Let it all crash and burn it.

      • TRADINGtheAPOCALYPSE

        Lol everybody be talking about how property is steady and not volatile. 40% up in 2 years is crypto levels of volatility.

        Can easy go the other way jusssst as hard as many a punter about to find out.

    • Leroy Huggins

      My thinking would be the easiest way out would be lending controls and limits applied progressively to send house prices sideways (nominal values), for a decade or two. Slowly bring prices back to reasonableness in real terms.
      If prices start to grow again, apply greater controls, if they weaken too rapidly and begin to fall in nominal values significantly, relax them. If such an approach was taken over the last 24 months would we be facing such troubles now?

    • Strange EconomicsMEMBER

      You mean the landed gentry, some proles, and guest workers paid nothing. . Thats where Australia is heading.

  3. Vivian DarkbloomMEMBER

    >I don’t get all the concern.

    Oh, I do get the concern: the 25% increase in property value was promptly spent on more IPs, crypto, AMGs, multiple birthday parties, ski trips to Switzerland, shopping tours to NY, private school fees, house extensions, yachts and motor boats, etc. The ‘concern’ is that the brought-forward consumption of future property value will not be supported by the actual future value of the property.

    • Yeah so basically the concern is that people may actually have to get off their bums and earn the $$ they spend.

      Wow what a concern to have. A sign of money printing gone too far.

      • Vivian DarkbloomMEMBER

        Yes, although I suspect a large part of Australia’s working population will not easily pivot to actually productive employment. Decades were spent with the belief that a job is mainly there to pay for renting money from the banks before capital gains are realised on their properties to fund their real lifestyles. In my professional life, I see little ambition, grit, determination and will to succeed – and the little I see is demonstrated by relatively recent immigrants who come from countries with no social security net and who cannot rely on private school networks to secure senior positions.

        • The question now for us as a country is, do we keep protecting this? Or is this not the country we want for our children’s future?

          • Leroy Huggins

            There is no “country for your children’s future” while the nation runs a high immigration environment. It is simply a territory for OTHER people’s children to make their own.