Wellington's Changing Housing Market

By Craig Lowe


In 2007, after five years of unprecedented growth, we finally saw concrete evidence of the long heralded downturn in the Wellington market. The recent runaway house prices have seen homeowner’s wealth increasing in leaps and bounds creating a kind of positive feedback loop that has helped bolster the NZ economy, but we all knew this ride had to come to an end eventually. Not least because first home buyers are currently all but locked out of owning a home.

So what happened in 2007? Locally there were two main contributing factors to the slowing down of the market: Alan Bollard’s attempts to curb inflation by raising interest rates, and the media’s incessant reporting on the ‘inflated’ housing market and the resulting interest rate hikes. Inevitably public opinion is swayed to the idea that houses are over priced and that a downturn is imminent, and to some degree this is a self-fulfilling prophesy. More worrying is the international ‘credit crunch’ due to the collapse of the sub-prime mortgage market in the US. Due to booming emerging economies and the related resources boom, the world was recently awash with investment money looking for a home, boosting global markets. That situation is rapidly changing. Shockwaves have been sent through the worlds financial markets and as I write this article our own stock market is down over 5% since the start of the month, and 13% since Oct 2007 following overseas trends related to the finance sector and concerns about a US recession.

What does all this have to do with the local property market? First of all, it is having a very tangible impact on our interest rates. The latest interest rate rise (as high as 9.6pc for two year fixed mortgage rates) has the banks quoting rising wholesale interest rates due to the sub-prime mortgage collapse as the sole reason for the increases. I also suspect that behind the scenes some ugly things will be going on in the development sector. Mezzanine or second-tier financing that is popular with developers who use it to finance their short term projects is now either impossible to obtain or incredibly expensive. This could be a major problem for developers who need to raise finance to finish existing developments. The large cashed up developers will be fine, but smaller or highly geared developers could easily lose their shirts in this environment.

So is now a good time to buy or to sell? Or should you sit tight for a few years and try to ‘wait out’ the current downturn? Let me answer this to the best of my ability and with the benefit of hindsight:

In the five years from 1997 to 2001 average movement in Wellington house prices was 1.2%. In the following five years from 2002 – 2006 the average movement has been 14.7%.

The break down of the past five years is as follows:
2002: 11.7%
2003: 24.8%
2004: 12.2%
2005: 15.3%
2006: 9.7% (Full year data for 2007 not yet released)

Source: www.rbnz.govt.nz

In 2008 we will undoubtedly see reduced growth, but the important thing to remember is that we are still only talking about reduced growth, not necessarily reduced prices. This simple fact seems to get lost in most of the reporting on the slowing market. While in a perfect world the best time to buy may have been five years ago, and the perfect time to sell could be now, at the end of the day prices will, on average, still go up in the long term.

One thing that has undoubtedly changed in the last six months is the length of time properties are taking to sell. Buyers have become more cautious. But it is important to keep this in perspective as well. New Zealand’s recent average of selling properties in less than three weeks is incredibly fast by world standards. Again what we are now seeing is not an aberration but a return to some sort of normality.

In short it is always a good time to buy or to sell as long as your situation allows it and your decision making process is sound. And as always, although you cannot predict in advance exactly what price your home is going to fetch in the market, you can definitely influence the end result by utilising experienced marketing and negotiating skills when you come to sell.

Feel free to get in contact any time on 021 764 647 for free, no obligation appraisal of your home.


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