If you have a long-term horizon, or even a medium to long-term horizon, there's no doubt that housing is more affordable today on the nominal value you have to pay for it. The servicing costs, of course, will have stayed relatively similar just due to the higher interest rates. But one thing's for sure is that there is a cycle with the interest rates, and it's unlikely they're going to stay elevated forever. They will at some point come down. So, when you take the life cycle of the property, it should be cheaper to own a property today than it would have been if you bought it two years ago.
So, my advice to buyers is, we're not just buying a financial asset, we're also buying something that we get value from the use of. So, if you can find a house that you're happy with in this market, that suits your family, and that you're comfortable with the borrowing level, then now is a fantastic time to buy. And I'm sure that over the medium to long-term, you'll do very well. Just don't expect any short-term capital gain in the next couple of years.
In terms of the barriers for buyers getting into the market at the moment, the big one would be finance. It's both the cost of finance and the availability of finance that are a problem for buyers right now. And bearing in mind, we've gone from a low of 2.5% interest rates to what might be well over 6% now, is an absolutely astronomical increase in borrowing costs. So, on one hand, buyers are now looking at what they can afford to borrow based on their servicing ability, and then on the other side of the fence, the banks are being a lot tougher on who and what they're lending on. I remember earlier in my career, banks weren't that worried about what they were lending on at all. In fact, they just wanted to know that you could pay the mortgage. So, the due diligence that the bank did was on the borrower, whereas now the banks are doing a whole lot of due diligence on the property itself and actually declining finance on a lot of properties just for small, relatively innocuous issues in building reports and things like that. So, getting finance and then the cost of finance are the two biggest barriers for buyers at the moment.
The truth is that, rateable values are based on a formula that the council uses to assess the rates, and they really don't have a bearing on true market value at all. You can see trends, like you can see potentially what percentage above or below properties are selling in relation to their RV, the problem with that on an individual sale basis is that they are all over the place and the average is just the average.
So, even that kind of analysis doesn't really help you. The truth is, a house is only worth what two parties will transact it at and that is driven by things like competition, what the current supply and demand is, how many other properties are on the market and things that there is no mathematical formula for. So, my best advice to the public is simply to take rateable values with a grain of salt. Really, what you need to look at is other sales in the area with similar features and what has someone in the market paid for those features and how does that relate to yours.
I think it really depends on your situation. The reality is that a lot of people will be looking at the current market and assuming it's a bad time to sell a house. But it really depends on what you want to do with the money and what your intentions are when you sell. And I think for most people who own a house, the property that you own will be moving in lockstep with the property that you're going to buy if you're selling to buy another property. So, if you're buying something in the same market, it can certainly be argued there's never really a good or bad time to sell. You just have to go off your personal circumstances.
In terms of selling an investment property or something like that, it might be a different equation. If you don't need the money, there will be another upcycle in the future for sure. The property market is very cyclical and if you can hold for the long term and you don't need the money, then I would say there's absolutely no reason to sell an investment property right now in a down market.
The flip side is if you do need the money, I wouldn't worry too much about the bad market. And a lot of it depends on how long you've owned the property for. If you've owned the property for five years and you're an investor and you want to sell, you've probably had five years of the greatest property boom that New Zealand's ever seen, and most people who have owned for that time have got an enormous capital gain, even in today's market. So that's how I would think about it. If I bought in 2021 and it was bought with the intention of being a long term asset, I probably wouldn't be selling right now. Your property could be sitting in negative equity. I'd be looking at it more for the original reason I purchased it, which would be to be a long term asset and maybe looking for the next upcycle in seven to 10 years’ time or holding it for the very long term.
Whether or not winter is a good or bad time to sell is an interesting question. I think that this can be quite counterintuitive. But obviously, the instinct amongst house sellers is that your house looks better in the sunshine.
We have a very seasonal business in real estate where more people put their houses on the market in the summertime because they will think the house looks better in spring when the garden's looking good and think buyers will be happier on a sunny Sunday than on a rainy Sunday. But of course, the ironic thing about that is everybody decides to do the same thing at the same time. So you do get a bit of an oversupply of properties. There tends to be more houses on the market and they're competing with each other for the buyer's attention through those summer months.
So, with a little bit of irony in it, selling a winter, in my experience, has actually been pretty successful. And we will often see a lot of the houses that didn't sell in summer will start to turn over through winter because buyers have less choice. So they will buy the ones that perhaps have been sitting on the market for longer.
So, we really do see winter as not necessarily being a bad time to sell and actually can be quite counterintuitively a good time to sell.
Quarter one has definitely been a buyer's market. We've been in a buyer's market now since about October 2021. To the end of February, we'd seen about 24% drop in house prices in Wellington in that time. But the rate of decline has definitely slowed. We had only a 2% decline in the three months to the end of February. Now, part of the reason for that is because not as many houses have been hitting the market. We also had a 49% decline in houses come to the market in February this year compared to February last year. And that will just be supporting the property market through a little bit of a lack of supply. It's not that the buyers have come back into the market. It's just that there's still a little bit less for them to choose from than there was at the start of last year.
We're seeing less houses come to market, which is also actually helping create that slowdown in the drop in prices because the supply and demand imbalance has just kind of evened up a little bit. We're probably expecting to see that trend continue with low level of turnover and a slower drop, but still a drop in house prices this year.
In terms of what properties are popular at the moment and what are still selling well, it's a really interesting question. Something I've never seen in my career in the last 23 years of selling real estate has been this flight to quality. Traditionally, houses that had a bit of potential that really you could make your own and potentially add value and all these things that people used to get excited about, they have actually become the difficult properties to sell now where they had been the popular properties.
The market has gone towards properties where the work has been completed. So the properties that are fully renovated are getting all the attention at the moment. Part of the reason is simply the inflation on building costs that we've seen in the last five years, and particularly since COVID, it's just been extreme. There's been a real divergence as house prices have gone down and building costs have gone up. The market, of course, has gone away from the properties that need doing up and so buyers are really in tune with this now. So it's become a lot more difficult to sell a property that actually needs a lot of work and of course, the properties that had a lot of work done to them in yesterday's dollars, say five or six years ago, but are looking amazing, that they are the ones at the moment that are getting the buyer attention and have been very popular.
If you're selling a property that needs work, it's a bit of a paradox because it's too expensive to do the work. There's no money in doing the work and then selling it. But if you're selling a doer upper that's not popular, that's an issue. So my advice is do the least amount of work you can to get the house as liveable and as enjoyable as possible, but without doing the heavy lifting of kitchens and bathrooms. So it might be paper, paint, carpet and sanding the floors and doing the gardens, something like that, but not going too far.