Is it time to panic?
Housing weakness has ended
This past month has brought further evidence to back the theme in my article four weeks ago that the real estate market is turning. The seasonally adjusted number of dwelling sales in the June quarter was ahead 19% from the March quarter and prices rose 0.7% in June after sitting flat for the previous two months.
The key group behind the market no longer falling is first home buyers. They have seen prices on average fall 18% from their late-2021 peaks, there is a good range of property to choose from, banks have eased their lending criteria slightly in recent months, and growth in income is good as the labour market is still relatively tight.
As yet we can see no evidence that average investors are following the young buyers. But experienced investors who have lived through a number of cycles are likely to have been buying for the last 6-12 months, finding good properties and not worrying about picking the bottom of the price cycle.
Owner-occupiers do not seem all that active as yet, but when they move then the market could run away on people relatively quickly. Sitting in the wings are a number of factors which will come into play at different times over the next two years.
- Interest rates have yet to start falling. When they do the many people who currently want to buy but cannot because bank test rates are above 9% will enter the market.
- If there is a change in government on October 14 then investors will return in anticipation of restoration of interest expense deductibility.
- The number of houses being built is falling and at some stage people will become aware of this and that will encourage many to consider a purchase earlier than if they believed a flood of new property was on its way.
- Net immigration is booming, and more people means more housing demand.
- The stock of property listed for sale has fallen 14% in six month and further declines will start to promote a rise in FOMO (fear of missing out), something which in fact is already underway.
For interest rates the scene remains very clouded with offshore inflation proving to be a lot stickier than hoped. But here in New Zealand a wide range of measures are improving, and the chances seem very good that inflation will be back below 3% come the end of 2024. That implies there is a good chance of monetary policy being eased in the first half of next year.
For borrowers the incentive remains to focus more on a 12, 18, or 24 month rate than something longer for now.
For additional information on the economy, housing market, and interest rates, you can subscribe to Tony’s free weekly Tony’s View publication at www.tonyalexander.nz
Is it time to panic?
Inflation is just in, and it has dropped to 6%. That’s good, but not good enough. The Reserve Bank wants you to spend less, so that supply exceeds demand and prices start to drop. They are doing their part to help us all by taking our spending power away. They’ll continue to do so until we listen to our reserve bank dad, otherwise known as the governor.
We have discussed refixing your home loan in recent times but thought we would go back to it as there’s much talk in the media of refixing at the moment. Half of all mortgage holders have a rate coming up in the next 12 months. If you have a fixed rate coming up, is it time to panic? We discuss below various options which will hopefully allow you to get through this higher interest rate period.
A key message to start with is, don’t wait until you’re in financial distress to contact us, or your bank. Many things can be done to get you through this tough time.
The first step is to figure out how much your repayments are going to increase by. If you fixed 6 – 12 months ago, the current rates may not be much different to what you are currently on. If this is the case, it may be a case of tightening the belt, but not falling into full panic mode.
If your rate is coming up in a couple of months, now is the time to be putting away any extra cash you can. This will help weather the storm if you have to fix on a higher rate.
If you fixed several years ago, and have a rate coming up now, this is a scenario that could cause some internal panic. Here are some suggestions for helping with this:
- Hopefully you have already started putting any spare cash aside for this higher interest rate market.
- Go through your bank statements, and see where you can reduce expenses? We typically see clients underestimate how much they spend, especially on food.
- Can you consolidate personal debt with your home lending? If you have personal debt, it is highly likely you are paying a higher interest rate than you would be on your home lending
- If you have tried all these options, you could talk to your adviser about going on interest only for a short period of time. Once interest rates have reduced, or you have a payrise, you can return to reducing your lending. This is just a temporary measure, and the sooner you can get back to principle and interest payments the better.
Disclaimer: This newsletter is meant to be informative and engaging, hopefully not a cure for insomnia. Please don’t take this as personalised financial advice. Discuss your situation with an Advisor. This is where I need to say past returns are no guarantee of future returns.
- Posted by Isbister
- On July 19, 2023