My opinion? Not yet. There are some really interesting dynamics at play in the housing market and they differ across the country.
The biggest driver will be “limited access to credit”. Most of the banks are only lending to 80% now for residential and 70% for investment property. This precludes a lot of people buying, but the impact of these policies is only just starting to really filter through. There have been a number of home buyers out there with preapprovals that, once these expire, will no longer fit the credit rules. As such they have become “motivated buyers.” We saw a surge of buying in February from our clients in this position. As these preapprovals expire we will see fewer new buyers filling the void due to the tighter credit rules.
Yes, there are still a few lenders going over 80% but they are likely to fill up their risk quota fairly quickly because of the lack of competition in this space. As such, they will come under increasing pressure to reduce their over-80% lending.
So … That means access to credit will become the key driving force behind the real estate market over the next two or three years. If unemployment increases further, as expected, and if this increases mortgage default rate for those who have borrowed over 80%, then it will get even tougher than it already is!
To borrow over 80% is tougher already. A lot of people simply don’t qualify. The biggest issue will continue to be a borrower’s ability to weather the credit crisis. It comes down to key things like your employment stability and the level of your other debts.
On the other side of the equation, there seems to be a genuine lack of good-quality property on the market in the $350,000 to $500,000 bracket. Anecdotally this is where a lot of the buying is taking place. Either that, or everyone is getting too fussy! For good places, in good locations, demand appears to be helping hold values. I also get the impression that we are not too far away from starting to see a property shortage in parts of Auckland, again!
For what it’s worth, my view is that Auckland City will weather the current market reasonably well. On the other hand, property outside the major cities will stay overcast due to unemployment and tighter credit rules.
The rationale for negatively-geared property investment is also over. Investment properties need to show a gross yield of at least 7.50% to meaningfully stack up from a bank perspective. This will continue to put investment properties under price pressure. Add to this that banks only lend up to 70% on investment property and you have definitely got limited numbers of prospective buyers.
My concluding comment would be that there is no need to rush into buying (unless your preapproval is running out!). Yes, it might seem a bit crazy out there at the moment but the pendulum will swing back to buyers over the coming months. Even now, there are still bargains out there, but you won’t find them if you’re not looking.
