House prices are falling, and interest rates are on the up. But what pains some is an opportunity for others. And while several commentators say house prices have not yet bottomed out and that buyers should hold their horses, markets can change quickly. In any case, taking your lead from commentators is a bit like banking on the advice of economists, who have correctly predicted nine out of the last three recessions.
So, make of it what you will when independent economist Tony Alexander says we are only halfway through the decline phase of prices – and yet if he were a first-time buyer he would buy in the current market.

The case for buying a house now

  • Houses are cheaper. According to the Real Estate institute’s House Price Index, the value of residential property nationwide is now down 12.4% from its peak in November 2021.
  • There are more houses on the market. Latest Realestate.co.nz figures show that the number of houses available for sale nationally has climbed by nearly 75% since this time last year. A buyers’ market, you might say.
  • You’d be rich and retired by now if you could pick the bottom (and top) of the market. So what if you miss out on a cheaper deal – house prices will continue to fall only for so long. Look at a 20-year graph of Auckland house prices and tell me what the trend line indicates. Auckland average house prices have risen 63 out of 71 years since the 1950s.
  • Interest rates have a significant bearing on demand. A recently reported bigger than expected drop in inflation in the US could discourage central banks, including New Zealand’s Reserve Bank, from hiking interest rates to forecasted highs. Specifically, the US Bureau of Labour reported that prices rose by 0.4% in October in the US, reining in its annual inflation rate from 8.2% to 7.7% at the end of September.
  • Rising building costs will continue to put upward pressure on house prices. The cost of building a new home is increasing at its fastest rate on record, due to persistent labour and material shortages. In July property research firm Core Logic’s Cordell Construction Cost Index (CCCI), which measures the cost of building a “standard” three-bedroom brick and tile house, rose by a record 2.6% in the three months ended June, compared with a 2.4% increase in the prior quarter.

The best time to buy is when you can

The accepted wisdom is to buy a house as soon as you can – if it makes good financial sense. Markets are dynamic and picking the definitive trough is only possible when the market has climbed out of one.

In some cases, negative equity is a risk. However, if the property owner can cover repayments and does not intend to sell in the short term, there’s very little to worry about.

The market has cooled, there’s more choice, and you’ve got more time to do your due diligence.

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