Like most property articles it confuses cause and effect.
For the housing market: the cause is high borrowing and the effect is high house prices - not vice versa.
From article:
Six per cent compound annual growth in the value of houses over the past 23 years versus 3% annual growth in average incomes has meant that household debt has had to increase from half to twice average disposable income
That explanation makes no sense. Houses are in short supply. That means that individuals who want houses are competing with each other to bid as much as they can. The amount they can bid turns out to be as much as they can borrow. The amount they can borrow is a function of their income and interest rates. The more we can borrow the higher we bid. The economic winners are those that get paid the mortgage interest (appears to be banks at first glance but is more complex than that) and those that sell a house without buying another the same. Feels a bit zero-sum for the economy as a whole - but house buying and status upgrades are a major driver of our economies.
The original Ponzi scheme. Fucks people that don't have a good enough income to borrow the market clearing price for houses (mostly neither can they save enough for a deposit).
I'm in New Zealand where our previous lefty government made some positive steps towards making access fairer. Unfortunately our new government will probably undo those changes: giving an advantage to the wealthier.
I saw a lot of strange pricing edge cases in my city after the earthquake in 2010 because years later there were houses that could not get a mortgage. There were as-is houses you could buy cheaply for cash, compared to a similar property with a mortgage costing a lot more.
Australias property market trends and sentiments seem to be trailing perhaps a couple of years behind New Zealands, in recent times.
We are now seeing in Australia the very same accelerated rising trend that New Zealand went through prior to 2022. Beginning with a slight but distinct feeling of public discontent at unaffordable prices, and soon morphing into actual panic, as entire (younger) generations (and their disgruntled, voting parents) realise that they've firmly entered the Never Own-your-own-home Zone.
If NZ is any future omen for what will happen next in Australia, then the fact NZ peaked and then retraced somewhat over the past 2 years - firmly assisted by a very fast rise in mortgage interest rates - may well inform what is coming up for Australia's next few years. Once they reach a certain point, which, given the above-linked rhetoric, can't be too far away...
(quiet-P.S.-while-trying-not-to-start-a-political-argument : commiserations on the regressive new government!)
And, while I am not an economist by any means, the above is interesting in light of the fact that Australian banks own most of New Zealands financial market. One might almost think NZ were being used as the guinea-pig beta testing service for its larger neighbour!
Which initiated our booming prices 3 years ago. Prices have fallen back a little but saying they have dropped is not correct IMHO. I saw the panic with first home buyers beginning from a very dead market because I was buying just as the boom was starting and I have been trying to help friends buy over the last three years.
> If NZ is any future omen for what will happen next in Australia, then the fact NZ peaked and then retraced somewhat over the past 2 years
I wouldn't say that is what happened.
There was very little stock on the market in Christchurch a few months ago and numbers of houses sold per month deeply dropped - so market price was set by very few sales.
Property prices are back on the way up again - the market turned a few months ago I feel (I was trying to invest again so I was watching my market carefully).
It is actually difficult comparing the two countries because factors vary so much.
Above opinions are based on what I saw in Christchurch.
Based upon trends, the NZ property price market did peak then undergo a significant (roughly half) retrace.
+41% over 19 months, then -20% over the next 16 months, taking us to mid-2023. The main trend-change vertices I am referencing (see the source's graph) :
While the retrace has levelled off since then, and even shown signs of a slight bounce back, I think we should avoid assuming that the previous uptrend will simply resume, with anything like the strength it had during the Covid FOMO period. It just isn't viable, too much economic squeeze from other directions (read: 'ain't nobody got money for dat shit').
Christchurch property prices peaked in February 2022. Prices are currently 7.28% below the peak (REINZ, October 2023)
Property prices appear to have bottomed out in June 2023. That was 10.7% down from the peak
I guess that I am talking about the leading indicators that I read when I am in the market, versus the lagging statistical figures. Also sentiment matters - at the "low" a few months ago there were very few transactions and auction room was very very quiet.
There are now adverts for 5% down mortgages. And I feel we have lost the doom sentiment that existed a few months back.
Also I believe that using "peak" for any price comparison or analysis will usually mislead (shares and crypto too).
I agree that terms like peak and bottoming-out can mislead casual readers, because the future market can easily disprove both assumptions. Thankfully, we are not casual readers, or a source of financial advice, and may speak freely among ourselves here at HN. (however, for avoidance of doubt, readers, "peak" and "bottom" are colloquial terms for potentially-ephemeral changes in a markets direction)
In my opinion - and this is firmly a subjective opinion, upon which nobody should act - the NZ housing market will stay relatively flat for the time-being. Sentiment is ok, but affordability is still at the edge. Should mortgage rates drop significantly, then the price-go-up-party can continue, but there is little reason to think we're going to see 2-3% fixed rates anytime soon, i.e. the next 5+ years, and therefore the macro economic conditions to support significant price uplifts may not be there. There's nothing to suggest that NZs average wage will proportionally increase (except by the usual inflation, and modest annual growth) in the foreseeable future.
And the modest ongoing demand resurgence may well (or not!) prevent further drops. Hence perhaps keeping the market relatively stable for awhile, after the partial retracement we had.
For the housing market: the cause is high borrowing and the effect is high house prices - not vice versa.
From article:
That explanation makes no sense. Houses are in short supply. That means that individuals who want houses are competing with each other to bid as much as they can. The amount they can bid turns out to be as much as they can borrow. The amount they can borrow is a function of their income and interest rates. The more we can borrow the higher we bid. The economic winners are those that get paid the mortgage interest (appears to be banks at first glance but is more complex than that) and those that sell a house without buying another the same. Feels a bit zero-sum for the economy as a whole - but house buying and status upgrades are a major driver of our economies.The original Ponzi scheme. Fucks people that don't have a good enough income to borrow the market clearing price for houses (mostly neither can they save enough for a deposit).
I'm in New Zealand where our previous lefty government made some positive steps towards making access fairer. Unfortunately our new government will probably undo those changes: giving an advantage to the wealthier.
I saw a lot of strange pricing edge cases in my city after the earthquake in 2010 because years later there were houses that could not get a mortgage. There were as-is houses you could buy cheaply for cash, compared to a similar property with a mortgage costing a lot more.