Predictions in an Unpredictable World
Most of the predictions made regarding the economy, house prices and the impact of the pandemic have turned out to be wrong. This comes as no surprise as there are too many variables that influence the outcome.
The property market today is very similar to what we have seen in the last four years, even though everyone predicted this to change with the pandemic, it did not, and looking back it is easy to see why.
Low stock – with added pressure
The supply of houses has remained low with a few factors easing the pressure, ie. short term rental properties coming back into the supply pool due to lower demand in the tourism sector. The overall demand however has not dropped with the increase of people returning home to New Zealand from abroad. Instead, this may have actually increased.
The return of the Kiwi
In the early days of the pandemic, the government predicted between 13,000-32,000 kiwis would return to NZ due to the pandemic between March and October. At the beginning of September, this figure was already exceeded with 33,000 returnees. This combined with the positive net migration
before the pandemic hit (72,000+ more people
coming to NZ for good minus those permanently leaving NZ) shows a huge increase in population growth. And with that comes more pressure on the current housing stock.
Interest rates & cheap money
Interest rates are at a record low with sub-2% rates being offered for the first time in NZ history. And it doesn’t look like they are going up any time soon. When they do increase, I hope everyone is ready for it, as it wouldn’t be the first time that people haven’t been prepared for an interest rate increase.
Although the Reserve Bank has eased restrictions on lending and Loan-to-Value Ratios, the banks have not necessarily followed suit. Many banks are actually more cautious now who they lend to and how much (or little) risk they are willing to take. We have found more people struggling to raise finance in the last six months than we have seen in the previous five years.
The DO’s and DON’T’s
In my opinion, neither major party had a solution to the housing challenges we face in the short term so they had no major impact straight away. With Labour at the helm for another term, however, the healthy homes act and other legislation related to rental properties may have an impact on your decisions moving forward. I’m still investing in property and will continue to do so, but I have shifted my focus towards more modern rental properties as opposed to higher-yielding properties that require more maintenance.
Here are my general recommendations for homeowners, investors and buyers:
Firstly, if we look back at predictions from economists, Bank CEOs, Politicians, etc., there is one common theme: most predictions are wrong. We need to learn from this.
I have watched interest rates and predictions related to interest rates for the last 15 years and have followed the trend to fix for longer terms at “good rates” based on predictions. And all of these have also been wrong. If I had chosen the lowest rate between 12-24 months each time a mortgage came up for renewal in the last 15 years, I would have come out as a winner!
What I have learned from past predictions is:
- Negative predictions are almost always worse than the reality.
- Most people are better off following
their timeline based on their situation, as opposed to jumping ahead based on market predictions.
- When looking to buy: be sensible but don’t wait for the perfect moment. When you find something you like, buy it. I have seen too many people missing out on capital gains because they waited compared to those who acted decisively.
- When looking to sell: choose a strategy and timing that works for you and make sure you have a plan for when you sell because finding the right house to buy is not easy in today’s market with low stock and high
- Property speculation can be lucrative, but also risky. Be careful and if you do speculate, none of the previous points above will apply.
- When you buy property, consider it to be a long-term decision (seven+ years) especially if you do it with the expectation of making money.
None of the points above will be 100% accurate every time, however, I have seen these trends year after year and I am following them myself with the decisions that I make. It is still imperative that you consider market movements and telltale signs because recessions do happen and so do downturns in property values. The key is to put these in perspective and not to become unnecessarily overwhelmed by negative news. These points are of course generalisations, so if you are in doubt at any time, seek independent advice or give me a call to see how the current market is having an impact on your decisions ahead.