Is now a good time to buy?
Over the last month we’ve been busy catching up with buyers to see if they still intend to purchase a home. And the overwhelming answer? Yes!
So, why is it that some buyers are confident in property and what are the upsides of buying in this market?
Off the pace
It’s nearly impossible to pick the bottom of a market. The only way you will really know is when you hear reports that prices are on the rise. So if you need a place to live, taking advantage of a ‘slowing market’ could have some great upsides. Things like, being able to take time to carefully consider your next purchase without the fear of missing out.
Boom time markets run at a frantic pace. Buyers are forced to make snappy decisions (sometimes in the absence of professional advice) to ensure they are even in the running. Unconditional offers are a must, unless you want to pay over the odds to balance out the risk associated with any conditions. On the flip side, a balanced market or one in decline is much more leisurely. The days on the market push out and this allows buyers to carefully consider if a home will meet their particular set of requirements without time pressure or FOMO forcing their hand. In a slower market, conditions are the norm. If the market really dips, conditions such as ‘subject to sale’ are once again feasible. A condition like this ensures little to no risk and the ability to control the transaction from the buyer’s perspective.
Negotiating to a mid-point
Those who have purchased over the last few years are likely to be familiar with the ‘best foot forward’ approach. That is competitively run processes pitting you against other equally hungry buyers such as a Tender or Auction. In a slower market, there is every chance of negotiating directly with the vendor. A good negotiator will reach an outcome suitable and agreeable for both parties. Depending on the skill of the agent, this may be less than your ‘all in price’.
We all love locking in a great interest rate and right now we have the best interest rates in living memory! With the OCR at 0.25% and banks’ lending at around the 3% mark for 12 months, money is almost free. For buyers with good job security, lower interest rates mean the potential to service a larger mortgage. And a larger mortgage may be the difference between a good home and your dream home. So whatever your requirements make your purchase based on good fundamentals such as sun, location and solid construction materials. Why? Because good quality real estate sells well whatever the market conditions.
It’s all about the margins
One of the buyer pools who expressed the most interest in continuing their property hunt post lockdown was investors. These are not the ‘mum and dad’ investors who tend to enter the market when times are good, but the seasoned investors who are happy to take advantage of changing market conditions.
Unlike buyers looking to occupy a home these buyers are not emotional when it comes to purchasing property. They view their next property the same way as someone looking to buy a new business does. It’s all about the margin. And margin is based on purchase price and potential market rent. It’s well known that Wellington has the highest rents in New Zealand. And with a government-based workforce offering more job stability than other regions, the potential to secure a property which is not only cash flow positive but is offering a significant return, is making this sector of the market an attractive place to buy.
Loan to Value Ratios
In 2013 the Loan to Value ratio was increased to 20% for all owner occupiers. Further restrictions introduced a 40% LVR for all subsequent dwellings, a change which at the time sent all but the serious investors packing – the intended result. Under current economic conditions, the Reserve Bank has decided to scrap the LVR’s, at least for the upcoming twelve month period. This change is necessary to assist with the flow of credit into the economy, with the ultimate goal of softening the downturn. Given the fixed timeframe, the flow on effect could see more ‘credit-worthy’ buyers looking to purchase property than otherwise would. Clarity around the banks appetite to hold less in reserve is yet to be seen and is likely to vary from bank to bank. A good mortgage broker will be able to discuss your options in the lending space.
The Bernard Hickey effect
During the GFC, Bernard Hickey was the go-to guy for real estate market commentary. His catch cry? The market is going to fall 30%. He had a band of merry followers who championed this prediction only to discover that, after an initial dip of 5% and a prolonged plateau in Wellington, the market almost doubled over the coming decade. If you’re considering buying in this market, buy with a long-term view because time is kind in the world of property investment. Short to medium term speculation would best be avoided for now.
Property losses VS the Sharemarket
The reason share markets experience massive drops on any given day is that shares are relatively easy to sell. When investors get nervous and sell, they are locking in the losses of the market rather than waiting for them to regain their value. The reason the property market does not experience those same sudden dips is because a property sale is a much more complex and lengthy transaction and property owners in New Zealand are, overall, opposed to locking in losses. That is unless they are under pressure to sell e.g. have been forced by your bank or are dividing assets in a relationship separation. That does not mean to say property owners all over New Zealand haven’t been presented with offers less than they may have achieved pre any given recession, it just means they haven’t necessarily accepted them. At the end of the day, the only person that decides on the final price is the owner. And if they don’t like the price, they simply won’t sell.
Buying and selling in the same market
The state of the market is irrelevant when it comes to the fundamental requirement for people to put a roof over their head. And that is why, in good times and in bad, people buy and sell houses. For those already on the property ladder looking to upsize or downsize, you will be transacting in the same market. This means that while you may lose a bit at one end, you’ll gain a bit on the other. That makes the overall transaction a neutral experience. It’s when people buy and sell in different markets e.g. selling in Queenstown which will be hit harder than most, and buying in Wellington which will be more insulated than most. Only then transacting under the current market conditions could be more problematic and require a more strategic approach.
The Wellington Market
Level 3 has meant the market has now kicked off and properties can once again start transacting. It is only now, despite everyone’s best predictions that we will get a feel for what is really happening out there. And even then, this is likely to change across the year as existing buyer pools are exhausted, wage subsidies have run their course, mortgage holiday terms expire and the pain kicks in.
May signals the beginning for the annual slow down, with owners putting their plans to sell on hold until the weather begins to improve. For now, we are likely to see an uplift in stock which was delayed in coming to the market because of the lockdown. Once that is sold it will be a game of wait and see.
WELLINGTON MARKET QUICK FACTS
Average sale price by Ward:
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