Economy,  Real Estate

New Zealand Properties Running Red Hot – Is Australia Next?

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What’s up everyone! Hope we’re all having a great weekend.

I know I did, because we were social to the MAX.

Felt good to break up the weekend routine of staying indoors for once.

Although that doesn’t stop me posting quality and titillating content on this quality and titillating blog.

As you might have seen with the headline, but property values in New Zealand are SCORCHING.

Residential property prices have surged by a whopping 20% compared to last year, pushing the median price of a house in Auckland, New Zealand’s most populous city, above NZ$1m (AUD $950k) for the first time.

And that’s not all, take a look at some other regions, some of which have risen well above 20%!!!

Suffice to say, I have no idea where Gisborne is, but that doesn’t stop me casting envious looks at those lucky Gisbornians.

Why The Fixation On New Zealand Then?

Um, well…

I think it’s because the same factors that caused their property prices to boom, are the same forces that we have here in our backyard of OZ.

What are they you ask?

Cheap money.

Oh and a strong recovery from COVID-19.

And, a strong demand for housing but lack of available stock on market.

Let’s tackle them one by one.

Cheap Moonay

Off the back of COVID, the Reserve Bank of New Zealand (RBNZ) cut its official cash rate to a historic low of 0.25% and embarked on quantitative easing to drive down borrowing costs.

It has also unveiled a program of cheap lending to banks designed to reduce their cost of margins further.

This has led mortgage rates for borrowers at historical lows:

Over here in Australia we also have a historic low RBA cash rate of 0.1%… with quantitative easing…

And we also have a program of cheap lending to our banks to reduce their cost of margins…

AND we have mortgage rates at all-time lows of sub 2% in some cases.

COVID-19

We all know that New Zealand is THE poster-child for how a Western nation should have handled COVID-19, though it helped greatly that they are an isolated island with an educated and co-operative population base… kinda like… Australia?

Ok, maybe thus far – lingering COVID outbreaks here in OZ have kept many people in check, but walking (or driving) on the streets, you can’t help but notice that it is SUBSTANTIALLY busier than a few months ago.

The way we are going though, I wouldn’t be surprised that we’ll be clear of COVID soon enough also.

Which means that we’ll then be in a “post-COVID” world with nothing but ultra low interest rates.

Lack Of Stock

Another big driver for the housing market in NZ, has been the lack of available stock.

Economics 101 dictates that if there is more demand than supply, prices rises.

So it’s not surprising that in Australia, we are also going through a lack of stock on market right now.

To be honest, this isn’t a big surprise – with the uncertainty from COVID meaning that many who wanted to sell but didn’t have to, pulled their listings.

Note, this is different from those who needed to sell and had to (many of those during the earlier months).

What this has created, is a dearth of available listings.

And because COVID-19 has largely impacted those on lower incomes, and left those with higher incomes relatively unscathed – demand for housing has not exacerbated.

Um so, Economics 101 dictates that if there is more demand than… you get the point.

Is It Time To Buy?

That’s not up to me to say, that’s up to you and your personal financial circumstances yada yada.

But you didn’t come to this blog-post for a cliched disclaimer did you?

No of course not!

Editor’s Note: All information is solely the opinion of the author only and not to be relied upon as financial advice, always do your own research and seek professional advice for your own personal circumstances.

Boo! Boo editor!

Editor’s Note: Boo yourself.

But if I had to hang my hat on something, I would say that the current financial environments between our two countries is pretty uncanny.

There are always caveats though, mainly being:

  • Subsequent waves of COVID.
  • Government interventions (or lackthereof once Jobkeeper and Jobseeker supplements finish).
  • Regulatory action (see what happened with APRA restricting credit requirements in 2016-17 when the market ran red hot, “hint” stopped the market in its tracks).
  • The unknowns (black swans).

BUT.

I’ve written about this before, interest rates or rather the hunt for a meaningful risk-adjusted return in this low interest rate world is the big theme in investing right now, and has been in the last few years.

Coupled with this, and the fact that I strongly believe (opinion only) that housing here in Australia is too big to fail… well, wouldn’t be surprised the housing groovy train has left the station already.

Let the Great Ponzi Scheme Great Australian Dream continue!


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