Forex: How Housing Market Approaches Affect AUD / NZD
New Zealand: interest rate hike
Figures from the Real Estate Institute show that average home prices rose 31% during the year through July, reaching a record high of $ 937,000. In March, Prime Minister Jacinda Arden introduced new measures to cool the market, saying “the last thing our economy and our homeowners need is a dangerous housing bubble.”
The income cap for government-sponsored first-time housing grants has been raised from $ 85,000 to $ 95,000 for single buyers, and from $ 130,000 to $ 150,000 for couples. The holding period for investment properties to benefit from tax compensation has been extended from five to 10 years, and investors have been prohibited from offsetting interest costs with rental income. Finance Minister Grant Robertson said “we cannot afford to jeopardize the current economic recovery by letting house prices get out of hand,” and announced $ 3.8 billion to speed up construction of new constructions.
And like its brother across the Tasman Sea, the Reserve Bank of New Zealand also bought $ 53.5 billion in government bonds. However, unlike Australia, it ended the program on July 23.
But house prices continued to soar. As inflation hit 4.9% in November, the Reserve Bank of New Zealand raised the base interest rate to 0.75%, its second hike in as many months. He expects rates to rise to 2% by the end of 2023, with further increases possible in 2024. Ultimately, he hopes the rising cost of monthly mortgage payments will push house prices down.
New Zealand raised its key rate and stopped buying government bonds. Australia is continuing its quantitative easing program and keeping its rate low. New Zealand could see its economic recovery falter, while Australia risks fueling inflation and the collapse of the housing market.
Meanwhile, China’s Evergrande threat remains significant. With Â£ 223 billion in debt, the potential collapse of the gigantic property developer could strike both Australia and New Zealand with destructive third-rate contagion. 30% of China’s GDP is tied to the housing market, but average prices in the country fell 0.2% in October.
The long-term impact on the AUD / NZD depends on which domino falls first.
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