Winter is coming. And so are higher interest rates and tighter lending restrictions.
ANZ economists David Wilson and Jo Masters, say that Australian homeowners should prepare themselves for the changes likely to come into effect in nine months.
They say that Canada’s approach to its property market can be seen as a roadmap of how things will play out here.
There are notable similarities between the Canadian and Australian markets. For example, Vancouver and Toronto have had booms comparable with Sydney and Melbourne; and Australia and Canada both had low post-Global Financial Crisis (GF) interest rates.
“Canada is nine months ahead in terms of monetary tightening,” Masters told Domain.
So looking into the Canadian crystal ball, we can expect two interest rate hikes next year.
“Canada recently released additional macro-prudential measures for the property sector. 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,” Masters added.
It’s worth noting that both Canadas hikes this year have only taken their cash rate to 1% which is still lower than our current rate of 1.5%.
But AMP Capital’s Head of Investment Stratgey and Chiecf Economist, Shane Oliver, agrees that Canada is one to watch.
“It’s a fair comparison to make, both countries have had strong immigration levels and pretty strong property markets, which have lead to a deterioration of affordability,” he told Domain.
Oliver also warned that if Australia goes down the same road as Canada, it could result in a steeper decline.