Well if you do I believe your being naive. There has been in the mon
ths of late a definite pick up in the market especially in the terms of sales volume which one could almost think that a bounce back is happening. There has been great activity, a lot of sales and new buyers emerging from the dark places in the economy. And they have all had good merit.
With the lowest interest rates in decades and coupled with dropping values in property all around New Zealand – buying a house has become a heck of a lot more affordable for many many people and this has sparked a few people to take action and buy a home. And to be honest it isn’t a bad time to buy a home for yourself because if you are buying for yourself in many places this option is cheaper than renting.
But in terms of the market being at the bottom I do not believe it’s there yet. There are many factors that conclude to me thinking this and I don’t share this view alone.
As we all know the Governments annual budget was delivered and our treasury are spelling out that they do not expect the housing market to pick up and expect property values continue to drop. The treasury say that house prices are forecast to decline nearly 8 per cent in the year to March 2010 and a further 4 per cent in the year to March 2011. They are already down an annual 9 per cent.
The drop will be attributed to the rising unemployment rates which is tipped to be upwards of 9% by 2010. The Treasury also forecast low levels of investment in property and noted annual building consents were at their lowest in over 25 years.
Westpac economists are also warning the pick-up in the housing market is unlikely to last. Chief economist Brendan O’Donovan and research economist Dominick Stephens predicted low sales volumes and gentle price declines in the second half of this year.
Prices would start falling again soon for the simple reason that longer term mortgage rates had risen sharply since March. They forecast house prices to fall 5 – 7 per cent during the next 18 months, with variations from that mostly determined by interest rates.
“Lower mortgage rates sparked the market revival, and higher rates will extinguish it.”
The big trend that is being picked is that mortgage rates were likely to continue weighing on the market for the next few years. Short term rates might fall, but only temporarily, while long term rates were more likely to rise. This alone is going to really hurt as money becomes tighter especially over this winter where rising unemployment, and continuing tight credit conditions will catch people out by surprise.
Indications of the improvement in the housing market so far this year included a 74 per cent rise in seasonally adjusted house sales in five months, from rock-bottom to roughly average. This has been attributed to continuing strong net migration because of even worse conditions overseas in some countries. This trend here has also seen the number of days to sell a house had fallen back to 2007 levels, while the number of available listings in has started to fall.
My word advice for the time being is just to be careful when it comes to buying property at the moment. You need to think of property at the moment as a long term investment. Not something you could renovate and make a bit of money from.
I’ve always contended two things will make a change unemployment and/or immigration, and large changes in the makeup of these will affect home prices in NZ whether we like it or not, simple market facts, supply & demand. Yup have to agree on the ast one, long term is always best – personal reasons. Looking to make money quickly, speculate…”then yous takes your luck when you do.”
However in all of this I do believe there are regional differences, and that needs to be taken account of in the same way, supply & demand.
I believe that in the spring a lot of homes will be put up for sale and this over supply will cause house prices to drop slightly again. As long as interest rates stay relatively low the drop in prices should be in single figures.
It all depends on the profits of the banks. Low profits could result in higher interest rates no matter what the OCR is. We saw this when some banks raised the fixed interest rates panicing the gullible and uninformed people to rush to fix their mortgages before they go up even more.
Well thought through and well argued – do you think regionality will make a difference?
I think the regions are going to be hit the hardest. Fonterra has reduced their payout and this is going to have a larger effect on the economy than people think.
For example. Taranaki a large farming community had so much money while I was their. Farmers were spending up large, buying investment properties, upsizing, buying property for their children (or at least helping finance this). There was just so much spending going on on and off the farm into the economy. It kept things moving along at great speeds.
Now there is nothing. The payout is not ever covering the mortgage. I have two friends of mine personally that are in this position and its horrible to see. They are selling stock just to pay the bills.
The economy in these areas I believe are about to come to a grinding halt. People have been hanging on for a few months now but now that winter is upon us its going to be very very slow with every part of the local economy there slowing down.
Peter to answer your question Yes it is.