Investors Re-enter the Market, Help for Borrowers Revealed & Properties Selling Faster

“The Week in Review”  is where we talk about current events for the everyday investor and homebuyer.

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THIS WEEK IN REVIEW TOPICS:
Topic #1: Stuff 19th of September -Here's how much prices have to rise to make buying a better option than renting your house

Topic #2: Landlords.co.nz 18th of September -Properties selling faster and prices increase

Topic #3: The Mortgage Mag 19th of September-Help to borrowers in financial difficulty outlined

Topic #4: Newshub 21st of September-Trade Me data reveals the most expensive districts to rent in New Zealand

Topic #5 Oneroof 20th of September-Tony Alexander: Investors are back and house prices are on the rise

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Chapters

• 1:00 Topic #1: Stuff 19th of September -Here's how much prices have to rise to make buying a better option than renting your house
• 5:31 Topic #2: Landlords.co.nz 18th of September -Properties selling faster and prices increase
• 9:30 Topic #3: The Mortgage Mag 19th of September-Help to borrowers in financial difficulty outlined
• 12:59 Topic #4: Newshub 21st of September-Trade Me data reveals the most expensive districts to rent in New Zealand
• 16:21 Topic #5 Oneroof 20th of September-Tony Alexander: Investors are back and house prices are on the rise

Transcript

 Hi everyone. I'm Debbie Roberts, owner and financial advisor at Property Apprentice. Join us today for the weekend review where I talk about current events for the everyday investor and home buyer. Our topics for this week, topic number one from   📍 Stuff on the 19th of September. Here's how much house prices have to rise to make buying a better option than renting your house.

 Topic number two, from   📍 landlords.co.Nz on the 18th of September. Property selling faster and prices increase.  Third topic from the   📍 Mortgage Mag on the 19th of September, Help to borrowers in financial difficulty outlined.  Fourth topic from   📍 Newshub on the 21st of September, Trade Me Data reveals the most expensive districts to rent in New Zealand.

 And fifth topic for this   📍 week in review from One Roof on the 20th of September, Tony Alexander, Investors are back and house prices are on the rise.  

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So first up for this week in review from Stuff on the 19th of September, here's how much prices have to rise to make buying a better option than renting your house.

If house prices were to increase by about 5 percent in the next year, it could offset the additional expenses of owning a home compared to renting it, according to BNZ's chief economist, Mike Jones. 

Currently, buying a house is considerably more expensive than renting, with the disparity being one of the highest on record. Presently, the costs of owning a home represent about 50 percent of average household incomes, compared to around 30 percent in 2020. In contrast, rental costs have risen to an average of 24 percent of household incomes.

The higher cost of home ownership has resulted from a significant uptick in mortgage rates and house prices over the past five years. While rents have also increased, they haven't kept pace with the rising costs of servicing mortgage debt. Auckland exhibits the most significant difference between the costs of renting and owning.

In Auckland, purchasing a home requires 63 percent of average household incomes, while renting accounts for only 24%. Additionally, if renters had savings equivalent to a 20 percent house deposit, the extra interest they could earn would further reduce the cost of renting. Nevertheless, Jones emphasises that this doesn't necessarily mean that renting is the more cost effective long-term option.

Two key factors come into play. First up, inflation. This tends to diminish the value of borrowers debt over time while pushing up rent payments and the uncertain trajectory of house prices. For instance, at the national level, the average annual expense associated with buying a median-priced home currently exceeds that of renting by over   $38, 000.

However, if house prices were to increase by around 5 percent in the coming year, this shortfall could be entirely offset by a positive revaluation of home prices, albeit in paper form. If house prices were to decline, it would significantly worsen the shortfall. It's important to note that these numbers are national averages and regional variations can be significant.

The decision to buy or rent ultimately depends on individual circumstances. Forecasts on future house price increases vary among experts, with different predictions from ANZ, Kiwibank, Westpac and independent economist Tony Alexander. Jones also highlights that the data doesn't account for non-financial factors that influence people's decisions to buy homes, such as security of tenure and the ability to personalise and renovate their living spaces.

While the comparison with other countries is challenging, New Zealand's stretched house price metrics and historically higher interest rates are considered factors contributing to the higher cost of homeownership in the country. Gareth Kiernan, Chief Forecaster at Infometrics suggests that in terms of property price per square metre, it appears to be more economical to rent than to own a city centre apartment in 21 out of 99 countries,

with 12 having lower rents than mortgage costs outside the city centre. New Zealand falls towards the end of the spectrum where renting is more cost-effective with only Argentina, Hong Kong, South Korea and Switzerland showing a more favourable gap in favour of renting, each for different reasons. Now, my thoughts on this are the sooner you get into the property market to purchase your own home, the better because rents will continue to increase over the long term alongside with inflation.

And at the moment, yes, we are facing higher than average interest rates on mortgages, but that's a temporary issue, whereas your purchase price is a permanent issue. So, if you wait until right start to drop, you might find that you purchase price is more expensive and,  and that would be a much bigger long-term problem than,  having that short term issue of a higher interest rate for a period of time.

So some of the things that you can do to reduce the cost of your mortgage is to have boarders or flatmates who can help you pay down that mortgage as well. So, and obviously board and flatmates, their rent could increase over time as well. Whereas your mortgage payment is going to reduce over time as interest rates come down and as you pay down your mortgage as well.

Second topic for this week in review from Landlords.co.nz 18th of September, properties selling faster and prices increase. The residential housing market is rebounding after a significant downturn. 

Properties are now selling faster and prices have risen for the first time in 10 months according to Trade Me's August Property Price Index. Homes are currently selling within 68 days, a decrease of six days from July. In contrast, in 2021, during the peak of the booming market, properties sold in just 28 days.

July marked a low point when properties spent 74 days on Trade Me's website, and the national average asking price, hit its lowest point since June 2021. Gavin Lloyd, Trade Me's Property Sales Director, believes that last month was a turning point. He noted that the shift towards less price transparent selling methods, such as auctions and tenders, is a sign of the market's recovery.

In a hot market with high demand and low supply, vendors tend to favour these methods, while in a cooler market they opt for more transparent approaches like setting an asking prices. Lloyd highlighted a shift towards less price transparency in August, with auctions accounting for 19 percent of total listings, which was an increase from 10 percent in July.

The number of properties listed with an asking price dropped from 35 percent in July to 26 percent in August. National average asking prices also increased, rising  to $837, 400 compared to July. This modest increase signals a turning point in the property market as there hasn't been month on month price growth since October according to Lloyd.

He advises prospective buyers with a deposit to consult local agents and banks and prepare to act. Regional variations are evident with some areas experiencing price increases compared to July . However, the largest regions, Auckland and Wellington, have yet to follow this national trend, with prices continuing to cool, according to this data. In the Auckland region, the average asking price dropped by 1. 1 percent in July to 1.023 million, the lowest since February 2021.

Wellington also saw prices fall below the $800,000 mark for the first time since February 2021, down 1.8% to $795,950. More properties are now listed for sale and more people are browsing property listings compared to July. The number of properties for sale increased by 2%, giving buyers more options.

Demand for properties also increased by 1%, contrary to the usual trend of a cooling market between July and August over the winter months. Examining properties by size, small 1 2 bedroom properties had the largest decline in price nationwide compared to August last year. 

On the other hand, large five bedroom properties in Christchurch City defied the national trend with a 7% price increase, although they remain significantly more affordable than their Wellington and Auckland counterparts. 

  📍 If you'd like to learn more about investing in property, join me at one of our free events called How to Succeed with Property Investing.

I'll discuss strategies for successful investing from my perspective as a financial advisor and these are available live, online or in person. Check out www.propertyapprentice.co.Nz for upcoming dates and register today. We don't sell property so it's all about increasing your knowledge to reduce your risk.

 If you've already been to   📍 one of our free events and you'd like to find out more about how we can help you to reach your financial goals, you can also book a  no obligation phone call or meeting with my husband Paul Roberts via the website as well. That's  www.propertyapprentice.co.Nz 

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Third topic for this week in review from the Mortgage Mag on the 19th of September, help to borrowers in financial difficulty outlined.

The FMA, that's the Financial Markets Authority, and the Commerce Commission have jointly issued guidance for lenders on assisting customers facing financial difficulties. This directive emphasises the importance of supporting individuals in financial distress as its effects extend beyond just monetary concerns, impacting wellbeing, households and the wider community.

This proactive approach not only promotes positive customer outcomes but also bolsters confidence in the financial sector. So number one, customer expectations. Providers should stay alert to changes in their customer's circumstances and be prepared to identify and assist those facing or likely to encounter financial hardship.

Staff should be trained to recognise signs of difficulties such as missed payments, requests for refinancing or significant life changes. If necessary, providers should initiate early contact, inform customers of their rights, and engage in conversations to understand their unique situations for tailored support.

 Secondly, assisting customers in financial distress. Providers should discuss various solutions with customers, explaining payment and support options, including their associated costs. Practical assistance might involve payment deferrals, encouraging independent financial advice, avoiding unfair penalties, and reviewing the necessity of products or services.

Providers should also consider debt consolidation, forgiveness or write offs and refer customers to financial mentoring services when needed. Sometimes the best outcome may involve product termination or asset liquidation communicated empathetically. Number three, having financial difficulty policies and staff.

Providers must establish policies for serving vulnerable customers, regularly reviewing and updating them to align with economic conditions. The Council of Financial Regulators has introduced a consumer vulnerability framework to guide providers in this endeavour. These policies should be well communicated to staff and intermediaries, with customer facing teams receiving guidance and training on implementing vulnerability processes.

And lastly, number four, proactive and regular communications. Providers should emulate the proactive communication seen during the COVID 19 pandemic, reaching out to specific customer groups to offer assistance. 

Providers should refrain from exploiting financial difficulty for customer acquisition purposes. When implementing fee increases, providers should inform customers beforehand and offer alternative solutions for affordability, ensuring fees for consumer lenders are reasonable. So my two cents to add to this would be that if you're finding yourself in a position where you're struggling financially, especially when it comes to paying things  like personal liabilities or mortgages, then get in touch with the lenders sooner rather than later.

If you are talking about your mortgage, get in touch with your mortgage advisor as early as possible in the piece so that they can help you put a plan in place. You know, don't wait until you start missing mortgage payments to get that ball rolling.

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 Fourth topic for the week in review from Newshub on the 21st of September, Trade Me data reveals the most expensive districts to rent in New Zealand.

Fresh data from Trade Me has unveiled the priciest rental districts in New Zealand. The August rental price index reveals that Auckland's North Shore, Manukau and Wellington's Porirua are the top contenders. North Shore witnessed a 30 uptick in rents, hitting a record high of 730 a week in August.

Porirua experienced a 15 increase, reaching $695 a week in August, while Manukau City saw a 10 a week rise to a new high of $690. Gavin Lloyd, Trade Me Property Sales Director, suggests that people are choosing a slightly longer commute in exchange for more space and a quieter neighbourhood. Lloyd notes that it's surprising that Tauranga made it to the top 10 most expensive districts, ranking 6th, with a median weekly rent of $680 in August, surpassing both Auckland and Wellington.

He attributes this to Tauranga's appealing lifestyle and proximity to the beach. Lloyd also points out that rentals in Wellington and Auckland often consist of urban properties like townhouses, apartments and units, which are more affordable. However, he emphasises that rents have risen across the board compared to last year due to declining supply and increasing demand.

Nationwide, supply fell 17 percent year on year, while demand rose by 14%, leading to higher rents. The median weekly rent increased by 7 percent in August compared to the previous year, reaching $620. Lloyd notes that Canterbury, Northland and Otago all hit new rent records at $570 $590 and $560 a week, respectively.

Marlborough, Southland, Nelson, Tasman and Auckland all experienced double digit percentage increases in median weekly rents compared to the previous year. In August, large properties with five or more bedrooms saw the most significant annual percentage increase of any property size, rising by 8%, bringing New Zealand's median weekly rent close to the $1,000 mark at $995 a week.

Now it's unsurprising that those larger properties have had more demand and hence the increased rental returns on those as well, because what we tend to find is that when the economy is tight and people's budgets are being squeezed, they do tend to, you know, move extra family members in or bunk up with friends, for example.

So properties with larger numbers of bedrooms tend to be in higher demand. Large properties in Auckland led the way with a significant 15 percent increase, reaching a record breaking $1,130 a week in August, making them the most expensive property size in the country. Lloyd emphasises that every property size in New Zealand witnessed an annual increase in median weekly rent, except for properties with five or more bedrooms in Wellington, which saw a 1 percent decrease to $985.

 

Topic number five from One Roof on the 20th of September. Tony Alexander, investors are back and house prices are on the rise. Drawing from data and insights collected over the past five months, Tony Alexander predicts trends in the residential real estate market two to four months in advance of mainstream media and public awareness.

In February, Alexander observed the resurgence of  first time home buyers, followed by a decline in investor activity in March, and a simultaneous increase in bank's willingness to lend. By May, he noted a resurgence of interest in open houses, which continued into June with a notable uptick in first time home buyer activity beginning in May.

In July, there was a substantial rise in FOMO, which is the fear of missing out, marking a shift from a buyer's market to a seller's market. During the same period, concerns among buyers about the volume of property listings surpassed average levels, while anxieties about post purchase price declines, or FOOP, the fear of overpaying, fell significantly below average.

A recent development in the monthly survey of mortgage advisors conducted in partnership with www.mortgages.co.Nz revealed that a net 24 percent of brokers reported an increase in investor inquiries about financing and interest rate options. This represents the highest level since January 2021 and indicates a significant milestone in the market.

Investors are returning to the market, complementing the ongoing strong demand from young buyers. Several factors contribute to this investor resurgence. Firstly, rising prices with seasonally adjusted average prices increasing by 0. 7 percent each month from May to August are enticing investors back into the market.

Price gains are most pronounced in the major centres of Auckland, Wellington and Christchurch. 

Secondly, discussions about housing pressures due to increased migration inflows into New Zealand have led existing investors to find good tenants relatively easily. This may drive rents higher, but more importantly, it grants property owners the flexibility to await quality tenants rather than accepting the first applicant.

Lastly, political opinion polls indicate a potential change in government in mid October, which could result in the full restoration of expense deductibility by mid 2026. Given the substantial withdrawal of investors from the market following the March 2021 tax rule changes, a return of buyers is expected if the rules revert.

However, it's important to temper expectations. A significant return of investors and rapid price surges are unlikely in the near term. Full expense deductibility will take nearly three years to reinstate. Interest rates remain high and costs such as maintenance rates and insurance are increasing.

Furthermore, a minimum deposit of 35 percent is still required for debt funded property purchases. Banks remain cautious about lending to new investors and continue to encourage existing ones to reduce their debt before expanding.  Substantial price surges aren't imminent and the upward phase of the credit cycle has yet to begin.

Nevertheless, the ongoing developments support Alexander's earlier prediction from this year of nationwide average price gains of about 5 percent this year. The likelihood of the earlier projection made a few months ago that prices may increase by nearly 10 percent in 2024 and 15 percent in 2025 is also growing.

This aligns with the nature of the early stages of this phase of the house price cycle, which is currently only three months old. For young buyers, the window of opportunity to make a purchase with minimum competition and flexible vendor conditions is closing rapidly. There's no denying that we're seeing signs that the market is picking up.

Price increases, faster sales and the return of property investors all mean that we may be in for another period of strong activity. What   📍 does this mean for first home buyers? And will the election period have any long term effect on investors? If you'd like to learn more about the property market, join me at one of our free events called How to Succeed with Property Investing, either online or in person in our office in Ellerslie in Auckland.

As a seasoned property investor and licensed financial advisor, I'll be sharing valuable insights and expert tips to help you on your journey. Whether you're thinking about buying your first home or you're already an experienced investor, there's something for everyone at our free events. I'll also tell you more about how we help our clients achieve their financial goals.

So if you're interested in finding out more about what we do, visit propertyapprentice. co. nz today to secure your spot and register for our events.  Alternatively, book a no obligcation phone call or meeting with my husband at www.propertyapprentice.co.nz 

Thanks for listening.