FULL ARTICLE FROM STUFF BELOW:
By Miriam Bell
Falling house prices and rising interest rates are making home-buyers wary, but experts say that, if you can afford it, now is a good time to buy.
Prices have been declining for months now, with the Real Estate Institute’s latest figures showing the national median was $825,000 in October, down 7.5% from the same time last year.
The institute’s House Price Index, which measures the changing value of residential property nationwide, is now down 12.4% from its peak in November last year.
Most commentators say prices have not bottomed out yet, and there is more easing to come. Westpac, for example, expects prices to fall a further 10% from where they are now, by the end of 2024.That would mean a 20% decline from their peak last year.
That makes for cheaper options for home-buyers. But interest rates have risen significantly at many banks, since Stats NZ revealed that the rate of inflation barely eased in the September quarter, and this has led to another pullback of buyers from the market.
Nervous buyers could be making the wrong call, though.
1. Lower prices mean more affordable options
Prices were high before the pandemic, and over the 2020 to 2021 boom, it is estimated they climbed by about 43%. That led housing affordability to deteriorate to the worst level on record.
Economist Tony Alexander says that even though prices currently remain about 26% above where they were pre-pandemic, incomes have gone up.
This, combined with price falls, means affordability has improved, he says. “The overvaluing of property which occurred is disappearing, and leaving buyers with cheaper options.”
For first-home buyers, the benefit of price falls outweighs higher mortgage rates, CoreLogic chief property economist Kelvin Davidson says. That is because a smaller deposit is required to purchase a house.
“A first-home buyer might be able to save $60,000 on the purchase price, for example. Yes, they will have to pay a higher mortgage rate, but it will be on a smaller mortgage, and saving that money to start with is worth a lot.”
Lower prices mean there is a wider range of properties in reach for them, he says. “A standalone house may be an option now, rather than a townhouse, or they may be able to get a property with more bedrooms.”
The situation is different for existing homeowners who may have to sell their house for less than was possible last year. But mortgage adviser Bruce Patten, from Loan Market, says if they are buying in the same market it does not make much difference.
“Someone might get a lower sale price for their house, but the house they are looking to buy will also be going for less, so it’s all relative. You could wait to sell until prices go back up, but whatever you want to buy will go up again too.”
2. Prices won’t keep falling forever
One fear for buyers is that prices will fall much further, either leaving them in negative equity, or leading them to miss out on even cheaper prices.
But Davidson says while negative equity is a risk, and being in it does not feel nice, in practical terms it is not a big problem if the homeowner can afford their repayments and does not plan to sell.
“It is true that if you buy now, you might miss out on a cheaper price because prices might fall by another 5%. But it is hard to pick the bottom of the market, so you could end up waiting too long.
“And while the market is quiet now, you might find a property that you can pick up for 15% less than it was last year, and below the broader market’s 10% decline, so that is a bargain already.”
Harcourts Hobson Partners general manager Lauren Mirabito says the market moves up and down in cycles, and anyone who is buying for the long-term, rather than to speculate, will be fine.
“There may be dips in the market trajectory, but if you chart prices over a 15 to 20-year period, then you will see they always go up. They may be falling now, but, eventually, they will start to rise again.”
Stories of people who have owned a house for a long time losing $100,000 on their purchase price when they sell are very rare, she says.
“But we do hear from lots of people who missed out on buying a property because they waited for prices to get cheaper, and they didn’t.”
3. There are lots more houses on the market
At the height of the boom, buyer demand far exceeded what was available. The limited amount of stock resulted in FOMO (fear of missing out) taking over the market, and buyers’ decision-making.
That situation has changed, because the number of houses available for sale nationally has climbed by nearly 75% since this time last year, the latest Realestate.co.nz figures show.
Rather than a sellers’ market, there is now a buyers’ market, and Realestate.co.nz spokeswoman Vanessa Williams says there is now a plethora of housing choices available.
This is beneficial for buyers, as it reduces the pressure on them to buy whatever they can get, she says.
“The slower, less frenzied market means you can take the time to really assess the options, you can do your due diligence properly, and you can make more considered decisions.”
4. Interest rates are never static
While rising interest rates appear to be the big deterrent for buyers, Alexander says there is a good chance fixed rates are near peaking, with the recent fall in US inflation providing some hope.
If rates from 2019, when there were fears of deflation, and from 2020 and 2021, when rates were at pandemic driven record lows, are stripped out, current rates are close to the average rate for the 10 years ending 2018, he says.
“Current rates are higher than they were in 2018, and the average for the next five years might end up being a bit higher, but they are not as painful as they have been in the past.”
Mortgage adviser Campbell Hastie, from Hastie Mortgages, says rising rates have a big psychological impact on borrowers, but over a 20-year mortgage term rates will always fluctuate.
“They are never static, so you have to take a long-term view, and don’t let the crisis reporting get to you. While they are harder now, they will get easier at some point.
“But it is important to always get good advice on your financial position before making decisions.”
5. Trying to time the market rarely works
Market sentiment can change quickly, so while the market is quiet now, there may be little warning before it starts to heat up again.
Patten says there is no timing the market, and buyers should not try. Instead, if they are in a position to buy, can find the right house for them, and can afford it, they should go for it.
“As long as they are not going to onsell the house until the market rebalances, and prices starting going up again, they are not likely to run into any problems.”
Williams says if someone is buying a home, they should not be buying based on what the market is doing, they should be buying based on their financial position.
“You should consider the market, but it shouldn’t be the deciding factor. You should base any decision to buy on your family’s situation, and if it makes financial sense for you, then you should do it.”
Source: Stuff