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Noughts and crosses – is the property market swinging from over to under-supply?

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I seem to love talking about circles and cycles, but this month’s column is centred around the opposite – the cross-shaped graph of supply and demand, with equilibrium sitting
smack in the centre. 

It’s a simple economic concept, and it’s one that’s become synonymous with the property market in recent years. Kiwis flooded home during and immediately after the height of the COVID-19 pandemic, which impacted the demand for housing here in New Zealand and caused house prices to increase at unprecedented rates.

But what’s interesting about this is how quickly the pendulum is swinging back, and how “lower supply and higher demand” is now starting to affect how property is priced. For the first time in nearly two years I heard an agent this week say, “we haven’t got enough properties to sell”, and this characteristic is being driven by a few factors I find quite interesting.

Economic commentators and even the RBNZ have started rhetoric that the bottom of the property market has been and gone this cycle, and this is starting to spread its tendrils out into the mainstream media. A self-fulfilling prophecy is encouraging more people to take action and bank some early equity as prices look ready to rebound back to equilibrium and beyond.

There is no doubt that the Government’s efforts to bring more skilled workers into the country have resulted in a shortage of housing. In response, there are more agents reporting multi-offers on properties, particularly in the bottom to middle of the market where buyers don’t need to sell a property to make their purchase work, and offshore cash is making its way into the housing market to allow new immigrants to set up a new life in New Zealand.

We’re hearing more and more that first home buyers are lining up to get into the property market. This follows changes in June that have made it a bit easier to purchase properties with lower deposits, as well as some lesser-known changes to the First Home Partner scheme, where Kainga Ora is supporting more buyers with equity deposits and extending these to existing properties rather than just new builds.

This is more pronounced than it was in previous months as the effect of a swing towards a slight shortage of properties heading into a traditionally busy time of the year is causing competition in the mid-range valued properties. More buyers are finding themselves needing to get their ducks in a row so they’re in with a chance.

In August the Reserve Bank kept the OCR on hold, but interestingly also signalled that they wouldn’t hesitate to hold rates up at the current level for an extended period, which is likely to preclude a rate drop before the middle of 2024, and even another small rise if needed.

Fixed rates have remained largely unchanged, albeit a few banks are discounting rates for strong clients. Relatively short terms continue to be solid options for many borrowers, but it’s worth considering the level of risk you’re willing to take in a still-uncertain rate market where they may remain higher for longer, and there is a fractional move towards 18 months to two-year periods.

An uptick in demand is underpinned by some uncertainty. The political race is on with only six weeks till an all-important general election, where perceived Government overspending, inflation, cost of living and interest rate hikes have all been big conversations amongst political leaders. Investors and speculative developers have stepped back for the past few years as affordability has tightened, and given the high demand for rental housing, they are ready to re-enter the market if interest deductibility is reinstated.

So – how do we win this game of noughts and crosses? 

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About Author

Claire Williamson

My Mortgage director and mortgage adviser.