If you’re waiting for a better time to enter the housing market, this could be the time to make your move. Despite the negative press, there’s a lot to like about the current market – particularly if you’re in the market for a first home.
A lot of the market commentary on housing seems to be pitched at investors and is on one hand rational, and on the other hand one-dimensional. Here at Squirrel we have a general dislike of “averages” and sweeping generalisations. Here are our thoughts to add to the mix:-
House Prices Have Fallen
Much has been said about New Zealand’s inflated property prices followed by the naysayers with headline-grabbing predictions. Prices have come back 10% already (which we highlighted back in May) and there is talk of at least another 10% to come (it has already happened!) Our buyers are consistently buying 10% to 20% below historic values, or buying houses they love, or both!
The losers in this market have been people who are forced to sell (death, divorce, or debt) so we think the best strategy over the next two years is:
- don’t die,
- don’t stray, and
- put on hold any aspiration to be a property developer!
The two other recommendations we could add to this are:
- don’t buy homes that leak, and
- don’t buy leasehold.
Although there is an oversupply of houses, and some people will find themselves in trouble from being over-leveraged, most homeowners are showing that they can ride out the next few years.
For all of the doom and gloom out there around 5,000 properties still sell every month! From what we can see, one of the bright spots is first-home buyers.
For a young professional couple in Auckland, house affordability has improved by over 20% this year. House prices have fallen over 10%; they will receive an extra $20 each per week from the October tax cuts; and interest rates have fallen 1%. As a result entry-level properties in good areas (that first-home buyers like) are selling.
For most first home buyers we talk to, buying is an emotional purchase and all about perceived quality. Our view is that houses that appeal to this market will hold more of their value, and it will get harder to find bargains as confidence slowly returns to the market over the next 18 months.
In contrast, prices will continue to fall on places that people don’t want, and in places people don’t want to live. Leaky homes, leasehold apartments, properties in lower-socio areas, and bare land are still in for a bumpy ride; but let’s not generalise that to the whole market. (These will be the ones that continue to get newspaper headlines!)
Fundamentally we know property in New Zealand is a good long-term investment. Our economy has solid fundamentals (global demand for food means our resources are always needed) and we have a growing population. We also know that there is very limited new property development underway because finance is scarce! So, given our growing population, we will be confronted by the next property shortage within five years!
