In this section
Offers for readers
Follow the news from interest
The comment stream
- 1 of 31910
- 1 of 437
The news stream
- Stop student loan 'parasites' like me 90
- 90 seconds at 9 am: Rates flatten 47
- Auckland home building rates slide vs rest of NZ 36
- 90 seconds at 9 am: Dairy prices up 30
- 'Value transfer' from savers to borrowers expected 19
- Bernard's Top 10 at 10 12
- On the first day of Christmas... 12
- Farm sales steady but dairy units slide 10
- Treasury forecasts deficit in 2014/15 9
- Fonterra forecast 'credit negative' for NZ banks 9
Top overseas commentators highlight NZ's overblown house prices
Two top financial analysts in Australia and America have highlighted New Zealand's overblown house prices and high foreign debts in detailed criticisms of the structural imbalances in both Australia and New Zealand. One described New Zealand as "Australia's Eastern Europe", while the other pointed out New Zealand house prices rose almost twice as fast as American house prices during the boom, but have yet to bust. Sydney-based financial analyst and former hedge fund manager John Hempton has become something of a financial commentating megastar according to the Sydney Morning Herald here and his Bronte Capital blog is regularly linked to by FTAlphaville in its closely watched 'Further Reading' section. In this piece titled Australia - The lucky but unbalanced country, Hempton argued that Australia has problems (particularly inner Sydney's widly expensive housing), but New Zealand's are far worse. Here's his views below.
Australia is one of the smallest and most indebted nations to be given the privilege of borrowing in their own currency and floating that currency. New Zealand (across the ditch) is the smallest country with the unlikely trifecta (has run large current account deficits for a very long time, borrows in its own currency, floats that currency).I don't like unbalanced economies. The global problems we are now having is because the economy globally had been so unbalanced for a decade before that. However we are and remain unbalanced within Australia. However a relatively mobile labour market (compared to Europe but not to the US), increasing internal migration and a common currency and language should fix that over time.Australia "“ I like it. I do not like the price. As an investment we are far more likely to be short Sydney consumption "“ and short Australian stocks "“ but it is not a bet against Australia "“ it's a bet against the unbalanced bits of Sydney. And none of that should be unmanageable.As for Australian banks other than our insane housing market the biggest problems are on the other side of the ditch. New Zealand is Australia's Eastern Europe - the over-indebted place without the historical advantages and with which we are not quite politically and economically integrated. When it comes to the crunch Australia will not guarantee New Zealand's debts - but the Australian banks will - which as Europeans are discovering comes down to the same thing.I have worked for both Australian and New Zealand Treasuries. I have very strong views "“ perhaps a little jaundiced by personal experience "“ about which is run better. The voting system in New Zealand is insane "“ whereas Australia's parliamentary democracy is amongst the finest in the world. The Treasury has an easier time in Australia and is far more talented. For macroeconomic management this matters. But not as much as the resources that Australia has and New Zealand does not.
Meanwhile banking analyst Ben Claremon at US hedge fund Right Wall Capital has written a detailed report on the vulnerability of Australian banks to the Australian and New Zealand housing markets. He gives a precis of the report on his blog here and I've embedded it below for those who want to read the whole thing. He points out that US house prices rose 68.6% from 2002 to their peak in 2006 and have fallen 32% from that peak. Meanwhile Australian house prices rose 76.3% from 2002 to their peak and have fallen just 6.7%, while New Zealand house prices rose the most at 118.4% and have fallen just 7.8%. Here's his views.
However, as shown by the peak to decline data, the global recession and worldwide real estate bubble has not had anywhere near the impact on housing prices in these two countries as they have had on US prices. The inevitable question that results from this observation has to do with whether or not New Zealand (hereinafter NZ) and Australia (hereinafter AU) are in for a similar decline in prices but are just a few years behind the US in the process. If that is the case then the resulting shock to the local banks that serve this region could be just as dramatic as the impact that the ongoing housing price spiral has had on the US banking system.
Your views and insights? We welcome comments and any further insights on this article and its source documents in the comments field below. Or if you want to remain under the radar please email firstname.lastname@example.org and we'll be in touch. We practice a form of collaborative journalism that aims to include the insights and expertise of our readers to improve our articles. That includes clearly identifying any errors and correcting them. We also update articles with relevant new information and commentary and will label our articles Update 2 etc. We know we don't know everything and we know we're not always right. We appreciate your help in constantly improving and deepening the knowledge and debate on interest.co.nz.