What it means to be in a first-home buyers’ market

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If you’re a first-home buyer it can be a monumental task to find a house to call your own. On top of all that, you may be constantly looking for the right time to enter the market and the ideal location to buy. The good news is the current market is now in your favour.

All over New Zealand, especially in Canterbury, prices have been levelling out or decreasing, which is often called a softening in the market.  Recent reports show one in four house purchases are by first-home buyers taking advantage of stagnant house prices and dropping interest rates.

If you’ve been saving up for a long time, this is your best chance for a long time to purchase your dream home.

But first, you may be interested in finding out why this is happening?

The Property Cycle - let’s talk economics briefly

The Property Cycle, also called the land cycle, is a concept that describes the cyclical rise and fall of real estate prices.  Obviously, when prices are low, first time buyers have a better chance of entering the market.

As a result of land being a finite resource, when the demand for homes and buildings increases, there is competition to buy what’s available and that’s why prices rise.  The rule of supply and demand applies; less supply encourages higher prices.

A good analogy is supermarket fruit and vegetable prices in winter, when there is less product available - we all know its more expensive to buy fresh veg when it’s cold outside. 

However, prices will reach a point when they become too high and unattractive, and people are less willing or able to buy.  It’s at this point the market softens and prices subside.  The  New Zealand real estate market is experiencing this currently.     

Learning why property prices fluctuate will give you more confidence in deciding when to purchase your first home and secure the best deal.

There are three key phases to understand.  

The Recovery Phase - the time after house prices bottom out

House buyers or longer term investors are often tempted to buy properties in the first few years after a dip, when prices are at their lowest and rent rates tend to remain the same. This initial set of buyers bring energy back into the market, a positive sentiment returns, the trend spreads and prices start to rise again.

During this phase, buyers can take advantage of cheap properties that are sometimes below their true market value. It often coincides with times of low interest-rates for home loans making the opportunity to buy even more attractive.

Explosive Phase - when a rush of energy returns to house buying 

This is when prices are going back up and banks are more enthusiastic about lending again simply because there is more confidence in the market.

In this stage, developers will have more access to capital to start building and house prices will increase. Investors who made an early purchase during the recovery phase now have the opportunity to invest again as the equity in their properties grows.  Banks become more open to lending, partly fuelled by the effects of competition.

As prices begin to peak, there is pressure on the investors to keep waiting for the highest price their property can reach and selling it before the next softening of the market.

Recessive Phase - when confidence dampens

The best years of the property market are usually brought on by people striving to buy property as values increase but there always comes a point when people start to question how long the growth cycle can continue?

It’s at this point when confidence can easily drop, which can become emphasised by forced sales as a result of buyers not being able to support the interest payments on their lending. 

In this situation it’s possible people would sell their properties at prices lower than their initial value.

Ultimately, as prices soften the property cycle will re-start when buyers re-enter the market because of attractive lower prices.  And so it all begins again.

Where are we now?

Different parts of New Zealand are at different stages of this cycle.  In Christchurch, the building boom has resulted in an oversupply of houses with many remaining unoccupied, and prices have dropped. 

Lower interest rates are also helping first home buyers get into the market with some very attractive current offers from major banks. 

There is a lot of research to support this trend.  The Real Estate Institute reported that the national lower quartile selling price declined 5.9% between December 2017 and the start of this year and they remain under pressure. House prices are predicted to drop by 2% each year for the next few years.

For first-home buyers, this really is a good time to buy!

Making the best of it

After being locked out of the market for nearly a decade, first-time home buyers can now rejoice at the stagnant prices and low interest rates. 

Now that you have this knowledge of this property cycle, it’s best to financially prepare for the house you’ve been dreaming of. Secure a budget for yourself before starting to browse so that you can avoid falling into first home buyer schemes or giving in to the pressures of making an immediate purchase.

Now’s your chance to get the house you’ve always wanted! Come in and let’s talk about acquiring the property you want at a price you’ll love. Get in touch with Taurus Home Loans today. We would love to give you advice and help you secure your first home. 











Posted 26 Nov 2018