What do you think?
Prices are falling, interest rates are rising, and inflation is running rampant. By all accounts, waiting for things to settle down sounds the sensible thing to do. It might not be. Buyers are waiting for prices to stop falling and interest rates to stop rising. Once either happens, buyers are back in the market and the competition is on. Some will miss out.
It’s a long-term game
“Don’t wait to buy property. Buy property and wait.” If you’re at all interested in property, I highly recommend following Opes Partners on one of their channels. They posted this quote recently that’s so simple it’s genius. Historically, property has always increased over time. It makes sense – and NZ should only become a more desirable place to live.
As does any market-driven investment, property prices rise and fall. This opens the door to “timing the market”. In theory, the perfect time to buy is when prices are right at the bottom of a trough and about to increase again. The problem is, you won’t know that this time has come until everybody else does too. The true best time is right before the trough, while everyone else is still waiting. So, is it a good time to buy property in NZ?
Signs the tides are turning
Property prices on average are still falling (although some locations haven’t seen falls and are still considered under-valued). However, there are signs that we are approaching the trough. Zest’s mortgage advisers alone have millions of dollars in pre-approvals for clients poised to buy. Economist Tony Alexander has recently released survey results showing that first home buyers are coming back to market, more people are showing up at auction, and concerns around interest rates, finance and price falls are reducing. Opes Partners estimate that price falls will end 6 months earlier than previously expected – sometime mid-2023. Summer is historically property-buying season in NZ, so I wouldn’t be surprised if the price falls slow down come December. Remember that buying isn’t a quick process – it can take months to get pre-approved and finally purchase. It can then be another month or two before you settle. Start the process now.
Why would anybody buy when prices are falling?
It’s a fair question, but there are good answers. When prices are falling, buyers are better positioned to negotiate down, not be negotiated up. The heat at auction has all but fizzled out. Prospective buyers are still there, but they’re sitting ready with their conditional offers, knowing the property is likely to pass-in. Also, there is far less competition in a down-market. We are seeing more offers being presented straight to the vendor, and less sales going to multi-offer. This isn’t good news for a seller, but it sure is for buyers.
Why would anybody buy when interest rates are rising?
Again, fair question. Again, good answers. I’ve already noted the competition – coupled with falling prices, rising rates have put buyers off. Apologies, its numbers time… The Reserve Bank expects the OCR to peak at about 4% by June 2023 then hold for about 12 months. The 1-year fixed rate historically follows the OCR, about 2.5% higher. This suggests that the 1-year fixed mortgage rate may peak at about 6.5% by June next year. If you were to buy today, you could lock in at 5.45% or less through to September 2024, by which time rates may be coming back down. It’s also a good time to note that while rates are almost double what they have been, they are currently far closer to ‘normal’. Don’t expect to see 2-3% interest rates again anytime soon.
Inflation is a killer, best to make friends with it
The cost of living is rising and showing little sign of stopping. This suggests lenders will continue to tighten their policy and criteria, making borrowing more difficult. If you can afford to borrow today, I wouldn’t be waiting for the banks to ease up.
How can inflation possibly be good when it eats away at your money? It also eats away at your debt. The dollar value of your mortgage doesn’t increase – but inflation causes the real value of it to go down. Essentially, if you have a mortgage, inflation eats the bank’s money, not yours.
If you skipped the rest of the article, read this
I’m not saying that everybody should be out buying property tomorrow. The key takeaway is that if you can afford to buy, you’re motivated, and you’re planning for the long-term, don’t make the mistake of waiting too long. As always, talk to your mortgage adviser and get personalised advice.
Post by Sam Mather – Zest Brokers Mortgage Adviser
