June and July are usually very quiet months but what a difference in levels of stock this year compared with last!
Here’s my take on it from a buyers and sellers point of view and then my own summary of what I think will happen – would appreciate everyone elses thoughts on what the future holds.
This UK article talks about “confident home sellers start to hold out for the asking price!”
Buyers
Right now buyers are quite motivated, but they are not stupid – they are still reading items from Reserve Bank saying prices will go lower, that unemployment hasn’t kicked in yet etc, etc but if they are cashed up and feel they are getting a good buy compared with a couple of years ago then they will act.
Many of these buyers have sold and are sitting on a low mortgage rate – ie they have kept the mortgage at say 5.95% fixed for three years, invested the equity from the sale to offset the interest bill but need to find a house asap to secure that mortgage against. ie bank has allowed them to carry the mortgage only secured against invested funds but they have only 90 days to find a house or they will lose the low rate.
Now think about a buyer who sold their house for $1m in March and they have a mortgage of say $500,000 at 5.95% fixed since late February with ASB for 5 years. The house is sold so they have kept the loan and invested the other half. Now $500,000 at 8% would cost $10,000 per year extra so they are very keen to find a house as they will save $50,000 over 5 years at 5.95% compared with 8%.
This type of buyer may be pepared to pay many thousands more than the average buyer would pay for a given house.
Other buyers have a rate lock in place but if they do not draw down the mortgage very soon they will lose that rate and it may even mean they can no longer afford to pay as much as they could at the lower rate.
Sellers
I sense they are now getting a bit too greedy. For example in the last 2 weeks almost every property we have appraised has gone like this – there are say 5 or 6 recent similar sales in a tight $40,000 range that are very good comparisons then when talking to the seller they indicate that they want $50,000 to $75,000 more than any of that group of recent sales. (OK the market is better than it was but these people are expecting to exceed even the peak!)
People who purchased in 2007 now wanting to sell well in excess of what they paid yet all the other recent sellers have lost money and buyers always look up when they bought and what they paid and still expect a discount.
Another group think they won’t get what they want and will ride it out. Yet another group and I am talking a massive number refinanced for 3 or 5 years fixed and are now likely to stay put so they are totally out of the market.
Sellers seem to think they may as well wait till Spring – many of them truly think interest rates will come down over the next few months and that net migration into NZ will accelerate – they are in for a shock!
Prediction
Right now a seller could probably get more for their home than they will be able to get later in the year! At the moment here is a shortage of stock, still plenty of buyers and interest rates still lower than the 10 year average.
I reckon we are going to see a flood of listings hit the market this spring but we are also going to see buyers go off the boil.
The reason is that interest rates are going to continue to climb throughout the remainder of 2009. Floating or 6 month will be a safer bet but very risky if you come off that rate and find that 3 and 5 year rates are back close to 9% to 10%.
Salespeople will have to be careful pre Spring not to over promise on price or we may end up being responsible for a 2008 style scenario with a huge gap between what buyers will pay and what sellers want.
It appears that the same issues are evolving simultaneously across the world.