The conversations I’ve been having in the past few months have been increasingly “wait till” orientated.
I’ll wait till…
Interest rates come back down
The market goes back up
After the election
Prices drop
There’s a funny thing happening in the property market right now.
Interest rates are starting to creep back up. The OCR has already increased once. On Wednesday, the Reserve bank is widely expected to increase it again.
On the surface, none of those “wait till’s” are really happening.
But if we have a closer look at the data, there’s another story for buyers, especially first home buyers. They’ve got something they haven’t had in years.
Choice.
Time.
Favourable lending policy.
And negotiating power.
So let’s take a look at the drivers and what to look out for this week.
The buyers are in charge, especially at the lower end of property values
Property sales have been slowing, stock remains relatively high, and prices are reasonably flat.
Cotality’s latest data shows there were 6,935 property sales nationally in July, 6.4% fewer than the same month last year.
At the same time, there were 27,336 properties available for sale, above the five-year average.
Those stock levels are keeping prices subdued and giving buyers considerably more leverage.
We’re seeing the same thing here in the Waikato.
With listing levels remaining elevated, buyers have greater choice and stronger negotiating power, and there’s currently very little upward pressure on prices.
That said, anecdotally properties in the low-middle of the market are still selling quickly.
Several situations where agents have reported properties hitting the market and being snapped up within a week, so there is definitely a two paced market going on out there!
First home buyers are taking advantage of conditions
First-home buyers accounted for a record 29% of all property purchases in July.
Look at them go!
They’re also buying more cautiously.
The average price paid by a first-home buyer nationally fell to around $680,000 in July, the lowest level in almost a year.
Another number that I think is really important, is that almost half of the mortgages approved to first-home buyers in July were for borrowers with less than a 20% deposit.
That doesn’t mean everyone can, or should, buy with a smaller deposit.
Lending criteria still applies and low-equity borrowing can come with additional costs, depending on your situation.
But it does challenge the idea that you necessarily need to wait until you’ve accumulated a 20% deposit before talking to someone about buying your first home.
I discussed this on this week’s Making Cents podcast with Frances Cook, along with a ton of other mortgage myths! (more on this later this week)
But what about interest rates?
The interest rate conversation is getting pretty interesting!
The Reserve Bank increased the OCR from 2.25% to 2.50% in July, and this Wednesday it makes its next decision.
At the time of writing, economists at ANZ, ASB, BNZ, Kiwibank and Westpac are all forecasting another 0.25% increase, which would take the OCR to 2.75%.
So yes, rates could go higher from here. And it looks like there’s a good chance they will. Mortgage rates have crept up somewhat under the radar through August, especially in the mid terms, two and three years.
Remember that the OCR is only an indicator. Interest rates are priced based on the cost of banks borrowing money, and then the predictor of how that cost will change over time.
So it’s absolutely not the only thing to consider when deciding whether it’s a good time to buy.
Because like everything, there’s a trade-off, and there will always be uncertainty.
And if rates eventually stabilise, confidence returns and more buyers come back into the market, you may find yourself competing with significantly more people for the same property.
Today, you might pay a slightly higher interest rate but negotiate harder on the purchase price.
You might have three houses you like instead of fighting ten other buyers for one.
You might have time to get a building report, think overnight and put conditions in your offer.
Those things have value too.
So what should you be watching for on Wednesday?
The headline will inevitably be whether the OCR moves from 2.50% to 2.75%, but I think we should all pay more attention to what the Reserve Bank says happens next.
Does it still expect the OCR to reach around 3% this year?
Does it think another increase could be needed in October?
Or is it becoming more comfortable that inflation will settle without significantly higher rates?
That’s what markets and banks will be listening for, and it’s what is most likely to influence mortgage pricing from here, as pricing for the mid and longer term rates depend largely on predictions of what happens next.
So don’t assume Wednesday’s OCR movement will automatically translate into an identical movement in your mortgage rate.
