More choices for buyers since general election

THE HOUSING market has stopped being a Scrooge just in time for Christmas. Tommy’s Real Estate investment specialist Mark Hamilton reports the market has changed dramatically since the general election, with an upsurge in listings offering buyers more choice than they’ve had in months.

‘‘We often describe the real estate market as being cyclical with the weather, the economy, the cost of borrowing and the availability of mortgage finance being just some of the factors that influence market activity,’’ he says.

‘‘This has never been more apparent than over the last few months as we endured a wet Wellington winter combined with the uncertainty that preceded and then followed on from the general election.

‘‘Spring has always been a season when real estate activity picks up and even though the spring influence was a little later than usual in starting, Tommy’s believes it has now arrived with a vengeance.’’

He says Tommy’s network of offices reports many homeowners are seeking appraisals of their properties to develop marketing strategies and pricing information before listing them for sale.

‘‘This is good news, of course, particularly for finance-approved new buyers in the market, offering them a greater selection than they have had in recent months.

‘‘From a property owner’s perspective, the current market is at the point in the cycle where although there are buyers in the market, the increased selection has made them more circumspect and they are taking longer to make buying decisions.’’

He doesn’t believe this will lead to a market correction, however.

‘‘Market commentators are suggesting that there is likely to be a decline in house prices in coming months.

‘‘Tommy’s opinion is the Wellington market has perhaps levelled out but prices are still holding up for well-presented property in popular locations.

‘‘Although the spring flush was a little late starting it is definitely with us now and we see the remainder of spring and the summer months as offering opportunities for both buyers and sellers to meet their real estate objectives.’’

BNZ chief economist Tony Alexander says the fundamentals still support prices rising – ‘‘but not at an accelerating pace.

‘‘And the bulk of the re-pricing of the country’s housing stock to reflect changes in long-term fundamentals has probably already BNZ chief economist Tony Alexander says the fundamentals still support rising property prices.

happened.’’

These long-term fundamentals include two incomes chasing a house instead of one, as happened up to the 1980s, and structurally lower interest rates due to structurally lower inflation.

‘‘This lowers the biggest cost of purchasing a house – the debt servicing burden,’’ Alexander says.

‘‘The reduction in this burden has been factored into the prices people are willing to bid.’’

Alexander believes there also has been a structural lift in the depth and range of groups wanting to be investment property owners, from foreigners and young people to savers and even baby boomers bemoaning low-interest term

deposit rates.

‘‘New houses are structurally very different from old ones with regard to levels of inspection and certification, energy efficiency and earthquake preparedness.

‘‘Cities also have less land available near main centres of employment so land prices have structurally lifted. And so on.’’

Most importantly, buyers no longer are in fear of missing out (FOMO), Alexander says.

‘‘When prices rise firmly, people feel a visceral need to jump into the market to avoid missing out on future gains which might come. ‘‘This is happening with Bitcoins. ‘‘Since the second half of last year FOMO has plummeted with regard to Auckland and it is on the way out in the regions.

‘‘What will happen if the housing market remains relatively subdued for the first half of next year?

‘‘Probably in that case the Reserve Bank will experiment with another easing in loan-to-value ratios, perhaps taking the minimum investor deposit from 35 per cent to 30 per cent.’’

He says the Reserve Bank is trying to learn how effective LVR changes are.

‘‘They have learnt that a 40 per cent requirement for investors is very effective; 30 per cent previously for Auckland was not.

‘‘But back then FOMO was strong.

‘‘In the absence of FOMO, 30 per cent effective from perhaps the end of May next year might still not elicit a fresh investor surge – especially as banks have tightened lending criteria anyway in an environment where low interest rates are making it difficult to raise deposits domestically and raising extra funds offshore is frowned upon by the regulatory agencies and the likes of the IMF.’’

Alexander says the key question economists can’t answer with certainty is: when will inflation rise enough to generate a rise in interest rates?

‘‘No one can stand up and say they have a good interest rate forecasting record these past ten years. We are all useless . . .

‘‘That is probably a harsh message to hear for those seeking to structure their mortgage to minimise cost over the next few years and those trying to maximise their term deposit returns.’’

He recommends borrowers spread their risk with a range of fixed terms.

‘‘The Reserve Bank project that they will not start raising the official cash rate until the end of 2019 but in the markets the view is that a rate rise will come probably in the second half of next year.

‘‘Of course, if the drought worsens and persists, then the Reserve Bank might start thinking about an interest rate cut.

‘‘If I were borrowing here at the end of 2017 I’d probably lock most of my mortgage in for two years with perhaps a little bit at one and three years.’’