Look back at the past and it will be very evident that – as we have often stated – the real estate market is cyclical. There have been times when prices have risen, there have been other times when prices have steadied or even dropped, but overall the owners of property who purchased for the medium to long term have prospered with an asset that has usually accrued value with time. This would apply to a home purchased for family living or equally for an investment property where there has generally been capital gain. Investors of course have the added luxury of a tenant paying market rent thereby contributing to the servicing of any borrowings and steadily assisting the property owner to increase their equity.
It is not difficult to see why property ownership has been such a popular investment vehicle for so many investors. When we consider the options of term deposits (with minimal returns) and the share market (risky and perhaps nerve wracking for the uninitiated), real estate reigns supreme! Even though the deposit requirements for investors when borrowing are being tightened, with low interest rates and a strong demand for rental accommodation, investors alongside first home buyers seem certain to make a major contribution to the pool of home buyers in the months ahead.
Property ownership has been kind to large numbers of people, and the year 2020 in particular, was a boomer. In the face of predictions that house prices would drop, the reverse happened. House prices increased in the last year – in many locations by upward of 17%; millionaires have been created and some homeowners can boast of values increasing at more than $2,000 per week over a sustained period. This represents money or income that takes a lot of saving or earning through any other investment medium! As we go to print, we cannot see any major changes to the current scenario, and the old saying, ‘Property will never be any cheaper than it is today’, is likely to remain true.
Worried that last year’s lock-down and the repercussions of the country going into hibernation would have serious implications for our economy, the Reserve Bank of NZ and the Government introduced policies that have collectively been the catalyst for much of the housing price explosion. We refer of course to low mortgage interest rates, the removal of the Loan to Value Rates (LVRs) and generous wage subsidies even for some beneficiaries that did not need or deserve these wage handouts. Mortgage ‘holidays’ were made available to cover work downturns and loss of income for many borrowers.
It is not our intention to criticise these policies as there is no doubt that New Zealand’s economy is in better shape than many other countries due to the Government’s management of the COVID-19 crisis and its flow on effects. Let us not forget how lucky we are to be living in an isolated country at the foot of the world! As well as real estate, there are several industries and retailers that have prospered since the lock down with discretionary travel funds being diverted to internal spending. Sales of motor vehicles, whiteware, and boats and caravans all appear to be enjoying a strong market at the present time. Home improvements and upgrading of chattels have also been a priority for many homeowners.
Travel agencies and others, whose livelihoods depend on getting people across the borders and home again safely, have not been so fortunate however, and some businesses in the travel and accommodation sector have had their business futures seriously challenged.
So, what does the immediate future hold for us? Probably little change, we suspect, at least in the short term. While the Reserve Bank is due to issue its first Monetary Policy Statement for the year in late February, any changes to the Official Cash Rate (OCR) are expected to be minimal and to remain close to the figure of 0.25% which has been constant since March 2020.
Among all the positivity of the market we do have a cautionary word of advice, however. If you are borrowing for a home purchase, take care to ensure that you are not over-committing as without a crystal ball, the future always has an element of uncertainty. We are seeing homes being purchased with substantial mortgage finance which is fine under today’s conditions, but what if tomorrow brings higher interest rates, sickness, or redundancy resulting in a loss of income? Could you still cope should these contingencies arise? Our advice is not intended to be negative, but simply cautionary!
Like most of the population, Tommy’s agents are refreshed after the holiday break and are looking forward to offering another year of real estate service to our clients, old and new. Despite a general shortage of property for sale, Tommy’s has listed strongly in January/February and this is on- going. We continue to have an unsatisfied demand from ‘cashed up’ or ‘loan approved’ buyers and have confidence in our people and our sales systems to emphatically state that if you are selling, we will secure the best possible price for your home or rental property. The market buoyancy continues, so let us help you to take advantage of current conditions.
We are also anxious to talk to those who are in the market to buy. It is not easy, but there are opportunities for those who have accumulated sufficient deposit funds. We offer our advice without obligation and will arrange an introduction to a reliable mortgage broker and/or solicitor if required, to ensure that you are getting independent, professional advice that will make your buying experience safe and secure.
For all your real estate needs we invite you to call a member of our sales team.Book a Free Appraisal