It’s the perennial property question – is this a good time to buy or a good time to sell?
As ever, the answer to the question will entirely depend upon who you ask and is why discussions on the property market often end up being lengthy, confusing and riddled with conflicting opinions.
An undeniable fact is that the current property market is cooling.
Sales volumes as reported by the Real Estate Institute are slowing and have been doing so for over 9 months.
At the peak of the market we were seeing 221 property sales per day across the whole country and that has fallen by 6% to 207 per day.
To give some context, at the lowest point of the depressed property market around 2009 we saw just 147 property sales per day.
The current slow-down is the result of an easing in demand. This is driven in part by access to finance being harder while the cost of finance has started to rise from the lowest mortgage rates in living memory. So far this year we have seen four interest rate rises and this has sapped the confidence of buyers.
We are clearly now in that part of the property market cycle where interest rates are likely to keep rising than falling.
Add to this the restrictions imposed by the Reserve Bank on buyers with deposits of less than 20% and you have two very powerful influencers that will continue for at least the next 12 months.
A key fact of the cyclical property market is that sales volumes lead price movement. That is why prices are still being reported as growing on a year-on-year basis.
That rate of growth however is slowing and will continue to do so. I suspect that it will slow to a point where sometime early next year we may well be seeing property prices at a national level start to fall on a month by month basis.
This does not mean we are about to see a property market collapse or that the famed bubble has burst. It is simply that property prices, on an aggregated basis, have stretched the financial capability of buyers.
Pitted against these buyers are sellers who have inflated expectations.
This is part of the reason why sales volumes have fallen. It has also created a classic Mexican standoff between sellers and buyers with the agent sitting in the middle trying to mediate. This extended mediation is stretching out the transaction time.
As a buyer this is welcome news as a year ago the market was so heated that it was causing a degree of panic with some buyers ignoring appropriate due-diligence as they desperately tried to get on the speeding train that the market was at that time.
That train is slowing significantly and buyers can now take their time and act more rationally.
The outlook for the coming year will rely on the core principle that property moves in cycles and we are on the down side of the cycle. My belief is that this will be short lived. By this time next year I foresee the market showing signs of strengthening, at least in terms of volume sales as the lead indicator. Four key factors will drive this:
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Economic growth. The coming years are, by all estimates, likely to see healthy economic activity as global markets continue to strengthen and the domestic economy powers on with our global trade increasing across our primary industries
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Immigration. This is forecast to remain strong as New Zealand becomes an attractive economic base for new migrants and an appealing place to live
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Financial adjustment. Buyers will by this time next year have become adjusted to the new mortgage rates and deposit requirements. It is worth remembering that there is an ever-growing group of buyers that want to get into the market but are finding it tough – for now
- More inventory. New house construction and renewed confidence among sellers will stimulate the market and increase supply
So, to return to the original question; is this a good time to buy or a good time to sell?
For my money I would rather be a buyer at this time although if you need to sell, price right and invest in presentation and marketing.
The above article was written by Alistair Helm, and was first published in Westpac's REDnews. It is here with permission.
9 Comments
The coming years are, by all estimates, likely to see healthy economic activity as global markets continue to strengthen and the domestic economy powers on with our global trade increasing across our primary industries
Alistair, I agree with your use of 'My belief'. The first - and most critical - of your four key factors is similarly a belief.
Andrew, I think your link covers the subject of expert's forecasts and their beliefs well:
Low scorers look like hedgehogs: thinkers who “know one big thing,” aggressively extend the explanatory reach of that one big thing into new domains, display bristly impatience with those who “do not get it,” and express considerable confidence that they are already pretty proficient forecasters, at least in the long term. High scorers look like foxes: thinkers who know many small things (tricks of their trade), are skeptical of grand schemes, see explanation and prediction not as deductive exercises but rather as exercises in flexible “ad hocery” that require stitching together diverse sources of information, and are rather diffident about their own forecasting prowess.
and
Plausible detail makes us believers. When subjects were given a choice between an insurance policy that covered hospitalization for any reason and a policy that covered hospitalization for all accidents and diseases, they were willing to pay a higher premium for the second policy, because the added detail gave them a more vivid picture of the circumstances in which it might be needed.
... reminds me of two " peak oilers " around here , who become rabidly angry with us " deniers " who don't " get it " ...
And who even tear strips off fellow bloggers who don't get it strongly enough , even if they are in partial agreement with the " peakers " argument .
... hedgehogs !!!
Very very true Gummy - they make the same mistake that so many have made over the centuries. They fail to realise that mankind has always adapted, invented, and survived, and generally with a higher standard of living over each century. They make the classic mistake of not only thinking "this time is different", but by decrying anyone pointing out the history.
mankind has always adapted, invented, and survived..
If the Earth formed at midnight and the present moment is the next midnight, 24 hours later, modern humans have been around since 11:59:59pm—1 second. And if human history itself spans 24 hours from one midnight to the next, 14 minutes represents the time since Christ.
Puts 'always' in context don't it? I admire you optmism though.
Slightly off the topic , but Sydney City is going to allow housing sections of only 125 sq metres from now on , down from the previous limit of 350 sq m.
.. .. it seems the extortionate prices of property in the great city have necessitated this measure to allow for more " affordable " housing ...
We will see how affordable they turn out ot be ... could be an answer for Auckland's housing " crisis " .... haaaaaaaaaaaaaaaa ....
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