Canada has a housing market twin

New Zealand and Canada have remarkably similar housing markets, with one big difference: Prices there are crashing harder than a toddler after a sugar rush.

Driving the news: A series of interest rate hikes have dragged down New Zealand home prices by ~18% over the past 18 months, erasing billions in wealth and helping spin the country into a recession, per The New York Times. 

Why should you, dear reader, care about Kiwi housing? Because New Zealand and Canada’s housing markets are like twins separated at birth. 

  • Both have an abundance of homeowners with variable-rate mortgages and fixed-rate mortgages with relatively short terms, making them highly sensitive to rate hikes.

  • They also saw massive spikes in home prices over the past decade that turned them into some of the world’s most expensive markets, mainly due to a supply shortage and low interest rates during the pandemic.

  • Banks also tend to group them into similar risk categories, with Goldman Sachs predicting that both would suffer crash-like price drops by the end of this year. 

Yes, but: While New Zealand hit bottom and then brought out the shovels to keep digging, Canadian home prices have actually increased for three straight months. What gives? 

One word: Immigration. Canada saw a record number of immigrants last year and is on track to break that record again this year. These people need places to live (obviously), so while prices briefly dipped over the past 12 months, they are already beginning to rebound.

  • Far fewer people choose to migrate to New Zealand. In fact, more people left than came into the country in 2022.

Bottom line: Looking at New Zealand is like looking into the housing multiverse and seeing an alternate version of Canada, where immigration isn’t propping up the sector.—QH