Is it the right time to buy your first home?
With house prices falling and sales declining, first-time home buyers may be wondering if now is the right time to jump into the real estate market. Or is it better to wait and hope for further price cuts?
Friday’s Quotable Value data showed prices fell 0.6% in the three months to March. Economists predict further weakness ahead and declines of up to 10% to 13% are expected.
It will be a welcome change for first-time home buyers who have seen the national median price, according to figures from the Real Estate Institute, rise from $612,000 in January 2020 to $880,000 in January of this year.
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So is it time to buy?
There are a few things to think about.
Home prices appear to be falling and any future increases are likely to be small for a while, at least.
If you’re buying with the intention of making a quick profit and moving on, now might not be the time to do so.
ANZ chief economist Sharon Zollner expects house prices to fall 10% this year. She said more listings, lower sales volumes and lower auction clearance rates point to a weaker market ahead.
Kiwibank’s chief economist, Jarrod Kerr, opts for a 5% cut.
He expected a period of consolidation, moving from a very hot seller’s market to a cooler buyer’s market.
“The dynamic has really changed. We’ve seen house prices go down a bit and interest rates go up a lot. The LVR restrictions and the CCCFA have had an impact on credit creation. If I was a first time home buyer, I would have time on my side now…. You wouldn’t have thought that six months ago.
Average price movements tend to mask a lot of variation. Some parts of cities and some parts of the country may experience larger price drops than others. Areas that are popular with first time buyers and investors may be more affected by tougher banks on lending, those with a high proportion of rentals may be affected by investor rules.
Infometrics chief forecaster Gareth Kiernan said new rules under the National Policy Statement on Urban Development and Medium Density Residential Standards focus developer and investor interest on sections that could be refurbished.
“We’ve seen this phenomenon in Auckland over the last five years thanks to the unit plan, where ramshackle villas on quarter-acre sections sell for big bucks because a developer can put ten houses in them. town instead. This effect is likely to spread to other major urban centers as new regulations take hold, putting a floor under property prices in locations perceived as attractive for redevelopment and intensification.
Possibility to borrow
LTV restrictions still limit the amount of loans banks can make to borrowers with less than 20% deposits to a maximum of 10% of new loans.
But after a period when very few no-deposit loans were granted, brokers report that loans have been granted to borrowers with 10% deposits, especially people with strong applications who are already customers of the bank.
Lending rules introduced via the Credit Agreements and Consumer Credit Act in December are being revised, which should also lead to banks having more leeway, for example to ask potential borrowers how their spending could change once they have a home loan. in place.
The past few years have been good for buying a home, as interest rates have reached historic lows. A $500,000 25-year mortgage that cost $1,364 per fortnight in March 2016 would have cost $1,151 in March 2021.
You may have missed the bottom of the interest rate cycle for now, so it’s best to prepare for higher rates in the years to come, but they’re still likely to settle in below long-term averages.
“Meeting your commitments in the face of a mountain of debt isn’t going to get any easier over the next two years as mortgage rates continue to rise. That said, anyone getting a mortgage now faces less in terms of future interest rate hikes than people who borrowed at 2.2% in mid-2021,” Kiernan said.
Inflation is a bit of a mixed blessing when it comes to buying a home. Over time, this erodes the value of your debt and makes it less burdensome. But, if house prices do not increase, it also reduces the value of your house in real terms.
Essentially for your home purchase, high inflation likely means more workers demanding bigger pay rises to make sure their pay keeps up with the cost of living.
Right now the job market is on your side and unemployment is very low, which means employers are more likely to listen to these demands for a raise.
If your income increases, it becomes easier to make your mortgage payments, all other things being equal.
“If I really have to push myself to buy a house and meet my mortgage payments now, and see limited opportunities to increase my income, my budget will continue to feel stretched for many years to come,” said said Kiernan. .
“On the other hand, if I can increase my income quickly somehow, debt service will become less onerous. But we have to start talking about big numbers in terms of salary increases before that happens. really a big difference.The difference in effect of a 3 percent wage increase compared to a 5 percent wage increase is negligible (at least over a period of one or two years).
Kiernan said he expects salary growth of 5% per year this year and next.
At Trade Me Jobs, sales manager Matt Tolich said he expects average salaries to rise by 4% over the next year.
Whether this is the right time to buy a home depends a lot on your situation.
If you’re buying because you want a place to settle down and plan to stay for at least a few years, there’s probably never a really bad time to buy. Buying a first home is usually as much a lifestyle decision as it is a real investment.
According to NZIER Senior Economist Christina Leung, whatever the next few years offer, over the long term, home values tend to rise.
“If you intended to buy a house to live in for the long term, the short-term peaks and troughs of a housing market cycle are less important.”
As with any investment asset, hitting the bottom of the market is notoriously difficult.
You only know that prices have gone as low as they will for now when they start to rise again.