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Why it's critical to think outside the square?

1 May 2024

Why it's critical to think outside the square?

In real estate, following the herd can lead to less than stellar decision-making. The term "groupthink," defined as the practice of thinking or making decisions as a group in a way that discourages creativity or individual responsibility, has led to missteps—from major political blunders to catastrophic business failures. This concept is especially important when considering investments in property, where independent and well-informed decision-making is crucial.

In Wellington, the recent property market trends have starkly demonstrated the dangers of groupthink. The lead-up to the election saw conventional wisdom advising against selling properties, resulting in a significant drop in listings—32% lower year-on-year by September 2023. This scarcity, ironically, created a seller’s market, sparking highly competitive buying scenarios and increasing the number of offers per property significantly.

However, post-election listings have surged, demonstrating a reversal of the previous trend and underscoring the fallibility of popular market assumptions. The current market situation presents a unique opportunity for both buyers and sellers to act independently of mainstream market sentiment.

Buyers should consider taking advantage of current conditions with prices still below the long-term trend and interest rates expected to stabilise. Sellers, on the other hand, may find advantages in listing now to capitalise on the increased buyer activity and reduced competition.

The Outlook on Wellington’s Property Market

The property market in Wellington has seen a bounce-back in prices, though this appears to be a temporary effect of reduced supply prior to the election. With a normalised increase in listings, the rate of price increases is expected to taper off, leading to a potential period of stagnation reminiscent of the years 2009-2015. This could stabilise the market, providing an environment where transactions can occur without the pressure of rapidly inflating prices, benefiting first home buyers and those looking to sell due to life changes.

Economic Insights and Predictions

Economist Tony Alexander notes that while New Zealand house prices have begun to recover, with a 4% increase from their lowest point this year, the growth is concentrated in major urban centres, influenced by net migration inflows and internal migration patterns. The economic landscape, influenced by government fiscal policies and external economic factors like the El Nino weather pattern, suggests a cautious approach to interest rate reductions.

In summary, while the market faces various pressures from demographic and economic factors, the overall trend suggests a move towards a more balanced and stable property market in Wellington. As always, individual circumstances will vary, and consulting with knowledgeable professionals like those at Lowe & Co can provide tailored advice suited to specific investment or selling goals.



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