House Price Correction Underway, On Central Banks’ Radar

The Economist recently identified the riskiest housing markets across the OECD. Canada ranked as the most vulnerable with Australia and New Zealand equal 3^rd and the US equal 7^th.

• The chart below shows recent house price developments in each of those markets and that the correction in North America has a lot further to go in comparison with the Antipodeans.
• Housing is another variable on the central bank watch list. For instance, the RBA has voiced concerns regarding the slump in the housing market in terms of a possible negative wealth effect weighing on household consumption and the impact of monetary tightening on activity in the housing sector.
• The RBNZ was one of the first central banks to begin hiking rates and NZ saw house price inflation peak at 28.8% y/y in October 2021. So it is not surprising that NZ has seen one of the sharpest corrections so far with prices down 7.6% from their March 2022 peak (using CoreLogic data). Australian CoreLogic house price inflation peaked at 21.2% in November 2021 and is now down 6.6% from the peak.
• In contrast, Teranet house prices in Canada, after rising 45% from the 2019 low, and the FHFA in the US peaked in June 2022. Canadian house prices are now 3.9% below their peak but in the US they’re only 1.3% below. Given the monetary tightening seen this year, both of these housing markets appear to have only just begun to correct.

Source: MNI - Market News/Refinitv/Bloomberg