RBNZ Preview: A Warning For The Rest Of The World?

Given the magnitude of the Great Financial Crisis, it’s understandable that traders still have concerns about a potential meltdown of the housing market in any place in the world.

In fact, by some measures, we still haven’t recovered from the GFC.

Most central banks in the world still hold mortgage-backed toxic assets they bought to support the market over a decade ago. In the US, the default rate on home loans is still higher than on credit cards.

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Meanwhile, through the developed world, housing prices have cruised higher at a rate around double that of inflation. Which is aided by the fact that most official measures of inflation don’t consider house prices in the basket of consumer goods.

A prolonged period of low interest rates in the US, Australia, New Zealand, and Europe saw people taking out ever-larger loans for homes in a restricted market.

Where are we going?

Despite the economic fallout of covid, housing prices have continued to skyrocket.

That is especially true in both New Zealand and Australia. Both these countries already experienced something of a housing crisis before covid hit. In fact, both the RBNZ and RBA had slashed rates through 2019 trying to shore up their economies.

This left their toolkit somewhat depleted ahead of the travel stoppage and lockdowns.

Now, New Zealand’s economy looks to be on the upswing. The country has once again opened the travel corridor with Australia, allowing visitors for the key ski season.

However, that is likely to only put more pressure on the housing market, as buyers try to lock in lower rates before house prices rise even more.

They aren’t alone

Having been able to prevent the mass spread of covid in New Zealand, at least domestically, the country’s economy is back to normal.

The situation with their housing market, though, might be a sign of what to expect in other parts of the world when their economies normalize before central banks start raising rates.

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