There are a thousand questions to be asked when buying property, but one query dominates them all right now: when will interest rates come down?
The current Official Cash Rate (OCR) is 5.5%, and the Reserve Bank of New Zealand (RBNZ) is giving little hint of when it will start making cuts that will boost the property market.
The reason for the OCR is the nation’s stubbornly high inflation rate. It stands at 4.7%, and the central bank wants to see it in the 2% to 3% range to help ensure sustainable economic growth.
As an experienced real estate agency in your area, we’re confident the OCR will fall in the medium term, but where is the rate likely to settle?
We got a hint recently when the RBNZ released a “bulletin” report outlining a “neutral rate”.
It said a rate of 3.9% would be neutral for the New Zealand economy, neither putting the brakes on economic growth nor allowing the economy to grow so fast that it risked another bout of break-out inflation.
The RBNZ said in its bulletin: “When an investor considers their return on investment, they are not merely interested in how many dollars they will receive in the future but also how many goods and services they can purchase with those dollars. Therefore, their real rate of return can be calculated by subtracting expected future inflation from the nominal interest rate (NIR) they invested at.”
Spending and investment decisions were heavily influenced by the NIR when adjusted for inflation, it said.
Three groups of real estate buyers are most affected by the current interest rate environment: upgraders, first-time buyers and investors.
These Top 5 Tips may help you handle the current environment when entering the real estate market.
Think long-term
Not enough consideration is given to the long-term value of a property purchase. We find everyone becomes focused on the here and now. Mortgage costs will vary depending on the economic cycle. Don’t get too caught up in day-to-day commentary and invest where you’ll find value in the medium to long-term.
Be Patient
With the number of listings increasing, buyers do not need to rush their decisions. You really shouldn’t be affected by FOMO: the fear of missing out. There are many excellent properties on the market today.
Set a budget
Seeking a lender for a preapproved mortgage will help you define your budget. When interest rates are stubbornly high, it is essential to get your numbers right. Ensure your budget covers costs such as commission, legal fees, property taxes, home insurance, maintenance and utilities.
Research the market
Understanding the value trends in your target areas will help you avoid paying too much. You can make a more educated decision about where to buy and how much to offer.
Importance of inspections
If you’re stretching your budget to make a purchase, ensure you hire professionals to thoroughly inspect the property. With high interest rates, you don’t want to borrow additional cash to fix nasty surprises.