22 April – MARKET COMMENTARY, REAL ESTATE, TIPS FOR BUYERS
In the last week as Alert levels are preparing to drop many clients and friends have been asking me if now is a good time to purchase property or if they should wait?
I am sure when you read this heading you were thinking he is “CRAAAAY Z”, but for many of you out there that were in search of a home/property before this pandemic or were thinking of making a move before everything came to a stop, now could be the best opportunity you will see for the next decade. Whether you are looking to get into your first home or you have sold and now renting or thinking when is the best time to commit, then there are 5 main reasons why now is a good time to create some certainty in your life when everything, well, feels very uncertain.
1 – Stability
Owning your own home offers a stable position and place. You can fix mortgage rates and therefore control the foreseeable future costs whereas rents could go up under increasing demand. Also if you have a mortgage and things get tough you can get a mortgage holiday. If you are renting, you can’t just decide to tell your landlord (if things are hard) that you will stop paying and start paying them back in three to six months time. Finally, you can invest time in putting down some roots. Improving the property to make it better, like creating vegetable gardens, painting the fence, or building a shed. Use your labour hours to do things around the property which makes day to day life more enjoyable and most likely will add value also.
2 – Security
For those renting (which I am sure most of you are), there is no certainty that in the coming months or years your landlord might not do one of two things. (1) being liquidate (sell) the asset to release capital funds for their business or own financial position, or (2), re-possess the home to move into themselves or move a family member in (remember we have around 70,000 Kiwis that have returned to NZ in the last 6 weeks and around $1million Kiwis living overseas at present. For the ones who have returned and ones looking to, they all need to be housed).
3 – Bank lending
Lending rates are cheap, cheap, cheap and deposit levels may now be low, low, low (with recent discussion by the Reserve Bank). It works out to be cheaper to have a mortgage on interest-only than pay rent in most cases. This is the time to get into a property and effectively save money week to week or buy another investment.
To all those with bank pre-approvals, you need to use them now. Banks most likely, even with low-interest rates and fewer restrictions on deposit levels, will be tightening up on their criteria for lending. If you have a serviceable income, this may not be enough for the banks to feel comfortable with their security in the current climate. They may want much higher serviceable incomes or be very unforgiving on additional debit, credit cards or lack of savings. There is a chance if you don’t take advantage of your current approval that you could be locked out of buying a property for some time. Talk to your agent about when your pre-approval runs out and if we or they can find you a good home at a fair price, make it work now.
4 – Motivated sellers
Sellers are motivated now. They are just looking to sell for fair prices. There is still a lot of people looking to buy, even more housing needed with ex-pat New Zealanders returning in droves, and with a housing shortage in Auckland (with currently not enough building to keep up especially with the last 4 weeks of delays and also 4 weeks of no new consents, surveying work, etc) then this shortage and pressure on supply is only going to be accentuated.
The people that want to make a move and sell now are serious and not just trying to rob you blind. They are wanting fair market value, but at the same time will not need to sell or settle for bargain prices, as all the other indicators tell them that if they wait they will sell for fair value with time as pressure from the lack of supply and overwhelming demand pushes prices up.
Remember if you are buying long term good property is still good property. I would always rather buy a good property for a fair price than a bad or poor property for a cheap price. Properties that have many compromises or little appeal will always be a little harder to sell and in this market place even harder again. These properties will go cheap, so if you are looking for a bargain then that’s what you should be looking for, but be warned that even that you may purchase for a great price there are still the same issues the property holds, which is why it was so cheap, and may become your problem in the future when it comes time to sell.
Trust me, go with the good property for a little more money and you will always win long term.
5 – Less Competition
In the first three months of this year, we felt like we were back in 2017. Auctions had multiple bidders and buyers were competing aggressively. This competition gave us an immediate lift of 5 to 10% of value just based on people pushing each other to compete for properties. We had numerous purchasers doing building report after building report, registered valuations and time with lawyers discussing properties and then missing out. Many of our purchasers were investing large amounts of money and time in considering homes/properties that they had no chance of purchasing. The stress for these people was terrible. We witnessed lots of sad faces, frustration and many tears which is hard when you just want to satisfy everyone.
The biggest problem was the amount of competition which in turn puts pressure on people to pay more and more and more just to secure a property.
Strangely, in just a short period we will be on the flip side. We foresee that competition will be less and maybe offering some of the best buying conditions we have seen for some time. With less competition, you can agree on a price that is fair and not over-inflated, then do your research knowing that if it all comes back good, you haven’t wasted $1000 to $1500 considering a property you wouldn’t end up owning.
Surprisingly when we see a change of market and competition drops, many purchasers shy away, as without the competition of other people wanting to buy at the same time (and with all the associated problems that come with that) purchasers lack the confidence to make decisions or commit to a good purchasing opportunity. With no disrespect, there is a bit of pack or herd mentality, where people only feel confident in numbers.
Most purchasers feel frustrated when the market is buoyant and competitive yet it equally gives them confidence that they are making the right decision, and when buying conditions are better with less competition and less buoyancy, purchasers are often nervous as “not everyone else is purchasing so maybe I shouldn’t”.
Astute investors with large property portfolios have confidence in themselves and their knowledge. They do not need others to give them that confidence, which is why you commonly see them swimming against the tide. This is why they are successful. They are prepared to do the things that most others aren’t. If people are buying in droves and competing aggressively for homes they don’t. When other people aren’t buying and are sitting on the fences they are buying.
This is the time to enjoy less competition, purchase well, enjoy improved lending conditions and not waste money overpaying under market pressures. Do your due diligence and find a property that is perfect for you and your family or your next investment.