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Market Update from Tony Alexander

As recently as February, media were highlighting the strong rises in average house prices from a year earlier, not realising that on a monthly basis prices broadly had been falling since the peak in November. Now the discussion focuses on the extent of price declines with reporters actively seeking out negative stories and those experiencing losses because of falling prices and construction problems.

We have seen this before because housing markets move in cycles and sometimes sharp shifts in market sentiment from positive to negative are one of the factors which accentuate the period of weakness. On the way up the opposite effect is in play and the monthly survey of real estate agents which I undertake with REINZ allows me to see the shift in action.

From shortly after I started the survey in April 2020 to late last year FOMO (fear of missing out) was very high. In October 70% of agents said that buyers were gripped by a feeling of a visceral need to buy. Now only 4% can see FOMO. Instead, 73% now see FOOP – a fear of overpaying – compared with just 19% in October.

FOOP has become so strong that people are actively seeking reasons not to buy property just as they sought reasons to make a purchase on the way up which they had not previously planned to do. There is no shortage of excuses for delaying a purchase including rising interest rates, the brain drain, the now widely reported falls in prices, and difficulties getting credit.

But history tells us those who hold out for the bottom of a price cycle often miss out. Skilled investors know this, and many sold their excess stock over a year ago when demand was exceedingly strong. Such skilled and experienced people are now waiting for the time to buy but are not planning to purchase only at the bottom.

That is not just because we cannot accurately pick price cycle highs and lows, but because before the low comes along is often the best time to find exactly the sort of property one is looking for. The same procedure  should be followed by those looking to buy a property to live in themselves.

Don’t try to pick the bottom but instead focus on the increasing number of properties being listed for sale and the rising willingness of vendors to cut their asking price to meet the market. We are not yet at the point in  the cycle when vendors capitulate to the market view but will probably be there before the end of the year.

In readiness for that, if I were a buyer, I might not jump to make a purchase currently, but I would be actively perusing listings to identify the rising number of properties meeting my criteria and for which I would eventually submit offers.

One thing likely to be concerning some buyers is the growing number of liquidations in the property development sector. These liquidations don’t represent overall weakness in our economy consistent with a recession  but instead are something I predicted well over a year ago.


“Many inexperienced, under-capitalised, and overoptimistic people have entered the development sector in recent years and their deficiencies are being exposed by the turning of the buyer cycle, plus the intensifying shortages and cost rises of labour and materials.”


A weeding out process is underway in the development sector, and it would be surprising if we did not eventually see some good buying opportunities appear for partially completed dwellings.

One factor buyers are fixating on currently is rising interest rates. Central banks around the world are rapidly raising interest rates having over-cooked their economies and inflationary pressures but not recognising economic upturns over a year ago and raising rates from early-2021. They are in a catch-up phase.

Will our central bank need to take the cash rate from the current 2% to the near 4% peak they have pencilled in for mid-2023? Probably not. There is a crunch in consumer spending already underway and the chances are the rate will peak at 3.5% implying maybe just 1% more on the likes of the one-year fixed mortgage rate and perhaps 0.5% or so for other fixed mortgage rates.

What about deposit rates? These will rise too. But the banking sector is awash with the $55bn of “printed” money injected by the Reserve Bank in their efforts to fight the economic impact of the pandemic. Banks do not need to raise rates aggressively to acquire and retain deposit funds.

The ten-year average rate for 12-month term deposits is about 3.2%. The chances are not high that rates will go much above that level in the near future or if they do will stay there for very long. In fact, given the worsening outlook for world growth it would not be surprising if NZ interest rates start falling before the end of 2024.



Disclaimer: This article is general information only. Although every effort has been made to ensure this article is accurate the contents should not be relied upon or used as a basis for entering into any products described in this article. To the extent that any information or recommendations in this article constitute financial advice, they do not take into account any person’s particular financial situation or goals. We strongly recommend readers seek independent legal/financial advice prior to acting in relation to any of the matters discussed. Neither First Mortgage Trust nor Tony Alexander accepts any liability for any loss or damage whatsoever which may directly or indirectly result from any advice, opinion, information, representation or omission, whether negligent or otherwise, contained in this article.

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