Rising interest rates in two countries similar to Australia have seen their house prices drop worryingly.
In the month since the RBA raised interest rates for the first time in 11 years, sentiment within many of the country’s property markets has changed significantly.
In Sydney and Melbourne, where just last year potential buyers had a very real fear of missing out (FOMO), this has been replaced by a much more measured and circumspect approach to the market.
In some areas where price declines have already begun, some Australians are dealing with a very different psychological phenomenon than FOMO which presents within market elements FOOP or fear of paying too much.
In some housing markets in Canada and New Zealand, FOOP has well and truly replaced FOMO as the psychological driver of market sentiment, as some of their largest and most expensive markets are already facing significant declines in house prices.
While there are naturally differences between Canada, New Zealand and Australia, the three countries arguably share the most similarities in terms of their respective housing markets compared to the rest of the world.
All three countries have seen meteoric price growth above already high price levels since the start of the pandemic and all three have high levels of household debt compared to the rest of the world.
In October, the Reserve Bank of New Zealand became the first central bank in the Anglosphere to raise interest rates, bringing its official exchange rate to 0.5%. Since then, he has continued to raise interest rates at every rate meeting. In its last two rate decisions, it chose to raise rates by 0.5%, bringing the Kiwi cash rate to 2%, a world away from the 0.35% cash rate we currently have in Australia.
It didn’t take long for the rate hike to be felt in the New Zealand property market, with house prices in Wellington peaking a few weeks later and prices in Auckland and nationally peaking the following month. .
Since then, the Kiwi housing market has diverged significantly, with prices falling 10.2% in Auckland, 11.2% in Wellington and 3.4% nationally outside Auckland.
In the past month in particular, price declines have accelerated significantly, falling 1.4% nationwide excluding Auckland, 3.0% in Wellington and 2.7% in Auckland.
Canada, on the other hand, raised interest rates a little later. The Bank of Canada pulled the trigger on its first rate hike in February and raised rates by 0.5% in April. Canada is expected to follow New Zealand’s lead and hike rates another 0.5% at the next Bank of Canada meeting.
Nationally, movement in the Canadian real estate market was relatively minimal, with existing home prices falling 0.6% in April, with some markets performing much stronger than others.
Although the impact of rate hikes is still very recent on the Canadian real estate market, one city is experiencing much larger price declines than the others.
This city is the most populous in Canada, the city of Toronto.
Since late February, the median home price in the GTA has fallen 8.9%. In neighboring Dufferin County, about 65 km from Toronto’s CBD, prices fell 22.9%.
This is due to skyrocketing prices in the GTA and outlying areas like Dufferin County, which have risen to prominence as working from home has become the norm during the pandemic. Between February 2020 and February 2022, housing prices in the Greater Toronto Area increased by 54.5% and in outlying rural areas like Dufferin County by up to 82%.
It has only been just over four weeks since the RBA raised interest rates, so the data we have on the impact on house prices is relatively limited. According to housing price data provider CoreLogic, since the RBA hiked rates, prices have fallen 0.97% in Sydney, 0.69% in Melbourne, rose 0.67% in Brisbane , rose 1.74% in Adelaide and gained 0.6%. at Lost.
This experience of smaller, generally lower-priced markets outperforming larger, more expensive markets is consistent with what we have seen in Canada and New Zealand, but this is understandably only the beginning.
Even if the Australian property market were to follow the path taken by New Zealand, it will be months before a major impact is felt outside the country’s two largest cities. But Australia follows the same course as the Kiwis, it is far from certain.
Across Tasman, the RBNZ is absolutely determined to raise interest rates, with Governor Adrian Orr recently saying the cash rate could hit 3.95% and warning that the RBNZ wanted to avoid doing “too little too late. “.
On the other hand, the RBA is much more cautious and if the Commonwealth Bank forecast is correct, much less likely to continue an aggressive cycle of higher interest rates due to concerns about high levels of corporate debt. households.
Ultimately, the course of interest rates is in the hands of central bankers, who may or may not pledge to fight inflation if they face the possibility of a housing crash and economic blow. which would ensue.
Tarric Brooker is a freelance journalist and social commentator. | @AvidCommentator