House prices are now surging in both countries. House price cycles in the Australian housing market tend to lag those in New Zealand a little, which is consistent with the forward indicators pointing to a rapid lift in the pace of annual Australian price growth in the months ahead. (See Chart 1.) Indeed, annual price growth should rise further as last year’s lockdown provides a favourable base in both countries. But we don’t think the rapid pace of price gains can be maintained for long. The strength in the New Zealand housing market has already prompted the RBNZ to reimpose macroprudential limits and we think APRA will follow suit before long. What’s more, the erosion of housing affordability and the boom in housing supply relative to population growth will eventually weigh on prices. That’s why we expect the pace of price growth to ease in the years ahead.
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