When you begin hearing optimism about our property market from generally conservative institutions such as the Bank of New Zealand, you can be confident that light is finally entering the real estate tunnel.
BNZ has been unerringly accurate in its forecast for property values and consistent in its prediction the market will turn around in the second quarter of this year.
With many owners resisting the urge to sell due to the current property cycle, BNZ economists are picking up the signal that New Zealand may soon have an excess in demand – more buyers than available properties – and that will encourage price growth.
As an experienced real estate agency, we’ve also found buyers starting to move back into the market. Right now, they’re prepared to trade off a higher interest rate for a lower price. And many are banking on the assumption rates have peaked, or are close to it.
Trying to time the market like this is tricky, though. Sentiment in real estate can change in a matter of weeks.
So if you’re considering buying, you’d be better served by prioritising your own needs rather than following the predictions of others. We do not recommend making a decision based on guesswork.
You won’t just be trying to forecast property prices but two other factors that intertwine to influence property values – NZ’s inflation rate and the response by the Reserve Bank of NZ to dampen it with higher interest rates.
It’s a complex picture with lots of variables. So, below, we’ve listed some considerations if you’re thinking of purchasing. This guidance is useful for those buying their first home or seeking to upgrade.
Affordability – Property prices might be lower but the cost of money (your loan) can be a limiting factor. Before beginning your search for a new home, calculate how much you can afford. Be sure any additional costs will not unacceptably limit your lifestyle.
Shop around – There are many different loan options available. But remember, the loan with the lowest interest rate isn’t necessarily the best or cheapest for you. If you’re a little bewildered by all the options, seek guidance from a mortgage broker.
Down payment – A solid deposit will mean you’ll be able to borrow more money and purchase a more valuable home. In the long run, this may turn out to be the optimal financial outcome as homes appreciate significantly in value over an extended period.
Buying power – For more than a year, NZ has seen fewer buyers in the market. Those who remain have enjoyed a strong negotiation position. But if the BNZ economists are right and buyers are returning, this leverage will evaporate. Standing on the sidelines right now and waiting may not be the best strategy.
Think long-term – If you’re prepared to stay in your new home for several years, you’ll find the impact of today’s interest rates will diminish. Your mortgage repayments will build equity in your home, enabling you to refinance at some point in the future.