In this article we will look at some recent trends and media announcements pertaining to the real estate market and real estate ownership. We will also cover why we believe that, as an investment for the average Kiwi family, residential real estate is second to none. We may be accused of having a biased opinion in this regard but we believe that the facts speak for themselves. Buying a home or an investment property is not easy – it never has been and never will be – but the rewards speak for themselves.
Real Estate Institute of NZ Statistics:
In a media release on 14/11/2019 the REINZ stated that median house prices across NZ increased by 8.2% in October to a new record high of $607,500, up from $561,500 in October 2018 and the first time the median house price for the country has crept over the $600,000 mark. The increases were variable throughout the country, with the REINZ reporting that only Taranaki recorded an annual decrease and that was a marginal decrease of 0.5%, or $2000 in dollar terms.
These statistics tend to suggest property owners will be enjoying the prospect of ongoing capital gains, and although the real estate market is cyclical with its ups and downs, the trend of rising values that has been evident over recent years continues in the climate of the current market.
Official Cash Rate (OCR):
Although the current OCR of 1% is at an all-time low there was a strong expectation there would be a further reduction at the recent Reserve Bank review of monetary policy on 13th November. This expectation did not come to fruition however, with the OCR retained at its current level. The OCR of course has a major impact on bank lending rates and borrowers will be well pleased with the mortgage interest rates that are currently available from leading lending institutions.
As unqualified observers of monetary policy but based on our own perceptions taken from comments of those who are more informed, we believe that mortgage rates are likely to stay at or about present rates for the immediately foreseeable future, giving confidence to prospective home buyers.
Supply and Demand:
Supply and demand probably has a greater influence on residential property values than any other single factor. In recent years the media has been full of stories relating to supply not meeting demand and this has no doubt been a major factor in driving prices upwards in recent years. As recently as Saturday 16th November, the Dominion Post’s front page feature suggested the population in the greater Wellington area would increase by between 90,314 and 137,757 people by 2047 requiring an additional 50,000+ new homes.
This must be encouraging for those contemplating homeownership or the purchase of investment property. It is difficult to find a reason why property values won’t continue to escalate, meaning that there is no better time to purchase a property than right now. A sustained period of increasing buyer demand in the months and years ahead seems assured.
Alternative Investment Options:
Low interest rates are good for borrowers but conversely, they have impacted seriously on those who are dependent on receiving a reasonable return on saved funds. A person with money in the bank a decade ago could expect around 8% or better on term deposit but would be lucky to get 3% on today’s market. Is it any wonder that medium to large investors are turning back to real estate? Whilst the share market is another alternative, there is a large pool of investors who have more confidence in a “bricks and mortar” investment. Real estate is an investment vehicle that they understand and can see, feel, mortgage, rent out or sell at any time if the need arises.
As we suggested earlier in this article, we cannot deny having a vested interest in promoting residential real estate ownership but we do so with confidence and based on our market experience and on trends present and future that are here for all to see. Tommy’s know the area we work in well, we understand real estate and we understand the need for our clients to invest wisely and with an eye to the future. We look forward to guiding prospective property owners through these considerations and decisions.