Is now a good time to buy property?

“When is it a good time to buy a house?” is a question I get asked all the time. Most commentators say that there is no better time to buy a house than the present. But with lots of economic factors (and one, not) in your favour, it is genuinely a good time to buy a house now.

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But what does this all mean? And why do all these things mean it is a good time to buy property now? This article will explain each concept and tell you when it isn’t a good time to buy a house.

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Property prices are dropping all over New Zealand

Property prices were 13.3% lower in April 2023 than what they were in 2022. The average national home value is now $902,501. While this is still 22% higher than pre-pandemic levels, it does signal prices are dropping. But the rate of falling house prices has slowed, and in some areas, are starting to rise again.

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It is unclear if house prices will continue to drop but economists believe that they will either stabilise or increase in price over the second half of 2023 and into 2024.

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💡 What does this mean? Property prices have been dropping because there is less demand, and more people want to sell their homes which is resulting in an increase in supply. Houses are no longer going to auction either. This gives home buyers more time to assess their options.

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The rise in interest rates is slowing

When the pandemic hit, The Reserve Bank of New Zealand printed a lot of money to keep the economy going (consider all the govt subsidies). This created inflation (each dollar is worth that little bit less). One way to control inflation is to increase interest rates.

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During the pandemic, interest rates were around 2.5%. In May 2023, they sit around 6.5%. But in the latest announcement by the Reserve Bank of New Zealand, Adrian Orr said that he would not be raising the Official Cash Rate much more (this means that the interest rates won’t go that much higher from now). Also, in May, he only raised the interest rate by 25 basis points (0.25%) which was a shock. Many commentators believed that he would raise it by 50 basis points (0.50%) which would signal that inflation is still quite high and the Official Cash Rate would continue to rise.

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In the same announcement in May, Adrian Orr also said that The Reserve Bank of New Zealand “is extremely confident that we’re on top of this inflation issue” and spending is slowing which is “taking the inflation pressure out”.

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💡 What does this mean? Interest rates are at or near their peak. If you were to buy a house today, then the most you will have to pay per week will be the highest it will ever be. This wasn’t the case with people that bought during the pandemic. But this is also a unique time (next 3 - 6 months) because as soon as interest rates start coming down, the property prices will start to rise again.

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Inflation is weirdly your friend when it comes to property when the prices are declining

Inflation is a measure of the price of common goods and services bought in a market. This is made up of a basket of goods. But not all goods and services inflate at the same rate. So while the inflation rate is around 6 -7%, some goods and services have increased by 20-30% whereas some goods and services may have actually decreased in price.

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If you can negotiate yourself an increase in salary due to inflation but spend strategically on things that have had their prices reduced, or leverage social changes to reduce your spend (i.e., in season fruits and vegetables; and working from home more frequently if you can), then you can save a lot more money (this is the theory but I know this can be quite difficult especially with the cost of living in general has also been rising). And because house prices are dropping, this helps you to save up for a deposit a lot faster.

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💡 What does this mean? As you save for a deposit, try and negotiate yourself a higher salary while spending on things that are not as inflationary. And because house prices have actually been falling, you can get yourself into a strong position.

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The property industry is getting more realistic

Real estate agents will constantly be telling you that more people are coming back into the fold and looking at property. This isn’t really true. The expectations of early 2022 aren’t reasonable in 2023.

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Property sellers are coming to terms with this too especially with their incredibly inflated prices. These properties are just not selling and are spending months on the market. This has led to properties from going straight to auction now going to negotiation or being priced.

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What we experienced from 2020 - 2022 isn’t normal for a lot of reasons. And this is the same for residential property sales.

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💡 What does this mean? You won’t be going into a frenzy. You can genuinely enter negotiations with the sellers. You are not necessarily competing with five or six other buyers. This also gives you more time to assess your options.

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The supply side of the equation is increasing

During the pandemic, virtually all building stopped and there was also a huge increase in demand. When this happened, the price naturally went up. But we are now seeing the opposite. Lots of houses are being built but there are not enough buyers. This is putting even more downward pressure on the price, especially of existing home dwellers looking to sell their properties.

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Building companies and developers will be very careful not to go below their build prices, but people who own homes might need to make a loss on their properties because of a change in circumstance or no longer being able to afford the mortgage repayments.

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💡 What does this mean? With the increase in supply, and the weakening of demand, prices have a spiralling effect. represents a unique opportunity to buy, especially in New Zealand where residential property prices hardly ever fall.

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Potential wage deflation in the building sector

With a number of building company collapses, there are more sub-contractors available. But there are also only so many jobs. And it is better to work at a lower pay rate than it is to not work at all. This means that the cost to build or renovate is also slowly coming down (maybe even back to normal).

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💡 What does this mean? Not only are house prices down, the price of building a house may also be coming down. This should be represented in house and land package prices coming in line to the rest of the market. It also means that the building companies that are still successfully operating can maintain a healthy profit margin while still bringing their prices down.

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So when is it a bad time to buy property?

These are the following indicators to suggest it is a bad time to buy property:

• Wages are stagnant.
• House prices are increasing.
• Interest rates are increasing dramatically, or will be going up a lot in the foreseeable future.
• The property market is hot.
• The banks are decreasing the loan-to-value ratio (this invites even more people into the property market).

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How can I learn more about buying a residential property in New Zealand?

I know how daunting it can be to start your journey into property. And it is for this reason I set up Slice. There are so many more tools and options than there were even from five years ago.

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Sign up to continue to learn more about property and reach out if you need any help 🙂

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