ANZ looks to Canada housing market as potential Australian roadmap
ANZ economists have suggested the slowdown in Canada’s extended property market boom could be a roadmap for future Australian housing market direction.
“Canada is arguably ahead of Australia in its economic and policy cycles, so watching developments there can be useful for those monitoring the Australian economy,” according to ANZ economists David Wilson and Jo Masters.
They noted house price growth in Canada has halved in the last year.
“Canada is nine months ahead in terms of monetary tightening,” Ms Masters told Fairfax's Domain, pointing to two recent interest rate hikes in Canada.
ANZ’s prediction since September has been that the Reserve Bank of Australia will hike twice in 2018.
ANZ Bank predicts the Reserve Bank will raise official interest rates by 0.5 percentage points next year as the economy gradually improves, with the first hike tipped for May by ANZ economists David Plank and Felicity Emmett.
Canadian interest rates have come off a lower base than Australia, with hikes in July and September only taking the official cash rate to 1 per cent.
They forecast the Australian cash rate will be lifted by 0.25 percentage points in May, followed by another hike in the second half of the year, and then it will be be left unchanged over 2019 so as not to crunch spending of highly-indebted households.
Previously, ANZ was not forecasting any rate hikes in 2018.
“Canada recently released additional macro-prudential measures for the property sector," Ms Masters noted.
"These are likely to have a material impact on mortgage originations, housing affordability and property price growth in 2018.
"The hottest property markets in Canada – Vancouver and Toronto – are likely to be hit the hardest by these measures," Ms Masters said.
Already the data has signalled the downturn has set in.
Toronto’s monthly home sales - in Canada’s biggest city - have fallen by as much as 40 percent in volume, the largest annual decline since 2009. There have been four months of price declines in Toronto.
The price of the average home in Toronto fell 4.6 percent in July, the biggest monthly decline since at least 2000. From August to September, the city experienced a 2.7 percent drop.
The monthly declines have not been enough to plunge annual gains into decline.
With Australian household debt sitting at record highs, the RBA faces uncertainty about how consumer spending will respond to slowing house-price growth, the ANZ said.
It recently advised about 38% of its home loan customers were repaying principal faster than required.
