Private property issue #124 - Is now a good time to buy?

The Tim Tams were in reach … when I heard it.

I was halfway down the biscuit aisle at my local Countdown Woolworths. (Sorry, I still get confused).

When I overheard a lady say to her husband … “We better buy a house quick. Interest rates are going down. So house prices will go up.”

It’s been years since I’ve heard people talk like this.

After all:

• Bank’s made it harder to borrow

• Interest rates soared

• House prices dropped almost 18%

• The government piled extra taxes on property investors

Investors exited the market because of these 4 factors.

But, after a big exit in 2021 and 2022, investors started to come back in late 2023.

They’re not fully back in. But, the data is more positive than a few years ago, according to Tony Alexander’s survey of real estate agents.

On top of that, last week, Kiwibank released an article with the headline:

“From hunted to hunters: property investors should have a ‘spring’ in their step.”

So some investors are asking: “Is now the right time to buy an investment property?”

The answer is “maybe”.

Let’s see whether these 4 factors are changing.

#1 – Is it easier or harder to get money from the bank?

A few years back, it was almost impossible to get a home loan.

Interest rates soared. That makes your mortgage more expensive. So you can’t borrow as much.

The government also updated the CCCFA. That was the law that caused banks to stop lending if you spent too much on Uber Eats or Netflix.

Don’t get me wrong. Lending is still tight.

But it’s getting easier.

The government is rewriting the CCCFA so more people can borrow.

And lower interest rates (specifically, servicing test rates) mean you can borrow more.

Sure, Debt-to-income ratios (DTIs) are now in.

But that won’t have much of an impact until the banks drop their servicing test rates down to 7.5%.

#2 – Are interest rates going up or down?

Interest rates hurt property investors.

Mortgage costs have gone up faster than rents. So, investors ‘top-up’ the shortfall from their own pocket.

But, the tide is turning.

Many banks have cut their interest rates by 1% in 2024. Westpac even cut their 18-month rate 7 times this year!

Interest rates could hover just above 5% by June 2024, according to ANZ.

That will bring more investors and home buyers into the market, pushing up demand.

#3 – Are house prices rising or falling?

House prices aren’t a slam dunk story (yet).

They bottomed out in May 2023 after falling 17.8%. They started going up at the start of the year but have since gone sideways.

Usually, this ‘sideways’ phase of the property cycle usually lasts about 2 – 2.5 years. Then, house prices start to increase again.

We’re about 15 months into this phase. I expect another 6-9 months before prices really start to climb.

Here are the latest house price predictions from the banks.

Bear in mind that to get the full growth in 2025. You’ve got to own (or buy) a house in 2024.

#4 – Are taxes going up or down (for property investors)

Taxes have been pushing investors out of the market.

But the government has changed the rules. Interest deductibility will be gone by April next year.

This will boost house prices as investors re-enter the market.

We’re moving from a higher-tax environment to a lower-tax market.

So … is now a good time to invest?

At Opes Partners, it’s my job to help people first time property investors – no matter what’s happening in the market.

Because investing for your retirement is always important.

Provided that you can get the right knowledge to invest.

So I don’t like saying, “Now’s the time to invest!”

Otherwise, you’ll think, “Of course he says that. He’s biased.”

But I’m going to break my own rule … because the data is so clear:

• We’re moving away from a time when everything worked against investors.
• We’re moving towards a time where it’s not easy … but it’s easier.

So, if you can afford it. It is a good time to invest (generally).

But it’s not a good time for everyone.

You should only invest if you can afford the current interest rates. Because they are still high.

So, you need to weigh up whether you want to buy now. Take the higher interest rate but the lower house price.

Bearing in mind that as house prices go up (and interest rates go down), your mortgage stays the same. Plus, you get the lower interest rate anyway.

Or whether you wait for the lower interest rate and pay the higher house price. Bearing in mind that your mortgage is then larger.

Whatever you choose, expect to hear more of these conversations at the supermarket, at work, or at the BBQ.