How to make the most of current circumstances
Pre-pandemic, buying your first home was a tough gig – but it was doable. When the pandemic hit, house prices skyrocketed. Every property sold put homeownership slightly further out of reach for first-timers.
At the same time, we saw record-low interest rates. It meant people could stretch their mortgages to the brink to get themselves on the ladder – if they had a spare $200,000 for a deposit to match the record-high house prices.
Now, interest rates are creeping up again and property sales have stalled. So where does that leave first home buyers? Here’s what you need to know.
A closer look at the situation
Interest rates were never going to stay low forever, so it’s no surprise that they’re starting to rise again. But before you panic that you’ve missed your chance, let’s look at what else is happening out there.
Current mortgages are stretched
Thousands of Kiwis jumped at the opportunity to secure low interest rates last year. But as house prices escalated at the same time, many families had to stretch their mortgages to the absolute max of their capacity. Now that interest rates are rising, some families may be unable to repay their mortgages at the higher rates.
Pandemic causes income drops
A five-week lockdown in 2020 put financial pressure on a lot of families, but most were able to get through it. This second wave might not have the same effect. Businesses that were only just picking up the pieces from last year’s lockdown will struggle, which could mean a lot of families dropping from two-income households to one.
Handbrake on investors
Last year, interest rates were at an all-time low and property investors rushed to add to their portfolios. Now the government has tightened the rules, investors need to have a minimum 40% deposit for an additional property. That makes investing in property out of reach for most.
Population growth stalls
When COVID first hit, thousands of Kiwis living abroad rushed home to the comfort of New Zealand’s bubble. Our housing market was suddenly inundated with even more people, some wielding the purchasing power of pounds or Euros. That pushed prices up even further. Now that first rush has slowed and with our borders firmly shut to non-Kiwi, our population growth has stalled. That, paired with the fact that overseas buyers can’t get a look in, means we’re seeing a decreasing demand for houses.
Decrease in house sales
When the property market went crazy and houses were selling like hotcakes, people were desperate to sell up and see what their money could buy them elsewhere. There was a constant exchange of wealth through property and real estate was in its prime. Now, there’s a significant shortfall in properties being listed – partly due to the recent lockdown, and also because house prices may have met their limit. Buying a home at the current rates has become unaffordable for most people, which has meant a decrease in sales.
Unsustainable price inclines
Just when we thought prices couldn’t go up any higher, they did – with the median house price in New Zealand now just shy of $1million. But experts say this trajectory isn’t sustainable, and prices won’t continue to skyrocket.
Where that leaves house hunters
If you’re trying to get on the ladder, your time could be close. Sit tight, wait for the creases of the pandemic to iron out and watch where the market goes. Here are our predictions:
Continued low interest rates
It’s true that interest rates are rising. But they’re still historically low compared to their all-time high of 18% in 1987. If you buy a property now, you’ll still benefit from lower-than-normal interest rates.
Decline in house prices
It’s been forecast by many financial experts – house prices simply can’t keep increasing. And with our borders still shut to prospective overseas buyers, it could mean demand for houses decreases, in turn pushing prices down.
More houses sold
With job losses caused by the pandemic and mortgages stretched too far, many families won’t have the ability to service their debt. That could mean fast house sales for low prices, or mortgagee sales.
Favourable terms for first home buyers
With most property investors now taken out of the game due to tightened lending rules, first home buyers may find more homes are in their price range.
Sit tight and wait for your opportunity
After more than a year of real estate madness, we’re starting to see light at the end of the tunnel – with house prices and sales stabilising. If you’re a first home buyer waiting to get your foot in the door, your time is coming – and you’ll be glad you waited. The first place to start your home hunt is to talk to a Global Finance expert. We’ll ensure you get the most for your pennies, at the right time.
**These are general guidelines and are by no means a reflection of bank or lending policies