Are you a buyer waiting for the market to fall? Waiting before you finally pull the trigger and buy a home? Many buyers in the current market are fearful as they listen to all the doom sayers, that property prices will tumble over the next year or so. After all, who wants to buy a property only to see it tumble in value.
Buyers, especially first home buyers, are usually very nervous creatures. And that makes sense, they are entering into what is possibly the most scariest thing they’ve ever done. Its not every day, you go out and spend half a million dollars or more.
So, what is the reality? If you’re a buyer, who should you listen to? And moreover, what should you be doing? Waiting, or Acting Now?
To answer those questions, it pays to look at history as well as also the current market fundamentals. If anything, these will help guide you and point you in the right direction.
Firstly, why has our market stopped going up? The answers here are primarily due to the Reserve Bank imposing loan to value ratio restrictions on investors as well as the fact that from 1st January, the Chinese have a $50,000 cap on how much foreign currency individuals are allowed to convert each year. That has had a sizeable impact on a lot of the buying pressures in our markets. The banks have been getting even tighter on their lending, mortgage rates have been rising slightly, the winter season is now upon us and finally increasing uncertainty about any possible policy changes post the election in September have all had a dampening effect on current demand. Is this the end of the world? Of course not. The current market is one where the buyers and sellers are now fairly equally balanced, meaning it is neither a buyers market, nor a sellers market, unlike 2015/2016 where it was a sellers market all the way.
Despite the Chinese money now slowing down considerably, there is still the fact that immigration into New Zealand is still near record levels. This alone will sustain demand for housing and homes for these people. Add to that the woes of the Auckland housing market, where our need for new housing far outstrips our capabilities to match that demand and you have a recipe for the current pricing levels not to tumble. Another factor, that adds further pressure to this whole equation, is that the number of Building Consents going through Councils is also on the decline, further exacerbating the shortfall in available housing.
A number of concerns are also highlighted in relation to the increase in prices over the 18-24 months. Fear that the market has risen far too fast where price rises of 50 percent in five years and where prices have trebled in the last 15 years seems too far to many people and too fast to be sustainable in the short term, which is important for property developers and home buyers.
They are becoming fearful that if they borrow and buy now at the ‘perceivable peak’, they could be caught in a downturn, particularly when the underlying measures of house prices to incomes are considered.
The thing is, investing in property in New Zealand (generally) and particularly in Auckland has been for many years and is still likely to be a safe investment. If you’re looking to buy your first home, or even your second to accommodate a growing family, the first thing to contemplate, is, can you afford the mortgage? I venture to suggest, you’re probably currently paying rent, which is obviously something you can then assign to a mortgage. Can you still afford it if interest rates trend upwards by one or two percent? If you can, or if its marginal, but you have some great job prospects over the next year or two, that will mean the answer here should be another yes and you should be good to go. (We can put you in touch with a fantastic mortgage broker, who can source the best mortgage for you rom all the banks)
So, lets say you’re comfortable with a mortgage, you’ve got access to a deposit, and you’ve found some properties that would be ideal for you, should you wait until prices drop, or pull the trigger and do it now?
Well, no one has a crystal ball to give you a definitive answer that is right for you. All we can do is give you the stats, the numbers and the fundamentals. The fundamentals do tell us very clearly (particularly for Auckland) that this City is continuing to grow and expand with more and more people being added daily. The ability for Auckland to meet the housing needs of its current and growing population is years behind, whether immigration continues at the same or similar levels or not. This alone should indicate prices aren’t heading substantially lower any time soon.
Its also a well conceived notion that Auckland property prices double roughly every ten years (sometimes more, sometimes less). This may not be a hard and fast rule, however, when you average it out over a longer term, its fairly accurate. In the graph image above from the REINZ sales stats. You can just about pick any date and estimate the sales median and then fast forward ten years and you’ll notice that median price is substantially higher than ten years earlier, sometimes doubling in value. See the examples below.
Examples:
1992 (Papakura) $100,000-$120,000 Median (Average median price over 12 months = $107,813)
2002 (Papakura) $175,000-$200,000 Median (Average median price over 12 months = $182,979)
2012 (Papakura) $310,000-$330,000 Median (Average median price over 12 months = $324,542)
1992 (Auckland) $140,000-$150,000 Median
2002 (Auckland) $260,000-$290,000 Median
2012 (Auckland) $500,000-$560,000 Median
Of course, there are always swings and roundabouts in any market, and as of right now, (June 2017) we are definitely in a cooling market and its anyone’s guess as to how long that will continue. but it would be unwise to hold off buying if you are definitely intending to buy as the market may not be quite as overheated as some might think. The following quote from a QV article in May 2017 states:
“The average value for the Auckland Region is now $1,043,830 and values are now on average 91.0% higher than the previous peak of 2007. When adjusted for inflation values rose 8.4% over the past year and are 59.4% above the 2007 peak.”
That should tell you that even taking into account the recent boom in prices, we still haven’t reached that magical 100% increase over the last ten year period. (Does that mean prices could still rise by another 9%?)
Sure the current prices may look large to many people, but if you’re actually looking for your first home, or your second, the chances are, you’re also intending to live in it, and stay there for a good five plus years. (Another statistic used to be that most home owners live in it for on average seven years) With that in mind, the best strategy I’ve always worked on, is to buy a home if you love it. Do your due diligence, but if you’ve fallen in love with a home, and its affordable for you, then the best time to buy it is NOW. There’s no guarantee prices are going to fall. (Especially with the fundamentals unlikely to change for quite a few years) In the words of an esteemed colleague, “You can never pay too much for a property, you can only pay it too early and time fixes everything!” Such a great philosophy when it comes to buying property.
A recent (June 2017) QV report states: “Entry level homes in South Auckland suburbs such as Mangere, Papakura and Manurewa where you can still find a property for under $650,000 are being sold mostly to first home buyers with investors no longer very active in this part of the market.” This is a great time for first home buyers to be buying their first home; the market is flat, the election is coming up in September and you aren’t competing with investors any longer.
Such a window of opportunity may be short lived, so in answer to the main question raised in the beginning, “Are You A Buyer Waiting For The Market To Fall?” Don’t wait for what may never happen, focus on the next 6 month time frame and try and buy during that time, protect your mortgage based on your mortgage broker’s advice (fixed or floating) and always keep in mind that you’ll likely live in the home for around 7 years, and properties in Auckland typically double in value every ten years or so and so that $600,000 first home you buy today, could very well be worth $1,200,000 in the late 2020’s.