Why is homebuyer confidence suddenly so low?

ASB Bank has revealed that homebuyer confidence has dropped significantly over the last three months – but there's still plenty of reason for property investors to remain confident.

A great deal of the property market is driven by investor perspective. After all, if people aren't keen on buying houses, then the entire industry ends up coming to a standstill; something that isn't ideal for anyone. With such a huge ruckus being kicked up across the industry lately, it appears that the confidence of some homebuyers has been shaken.

Is the current property market making you anxious?Is the current property market making you anxious?

It's no surprise really. The Auckland Unitary Plan, the new rules around loan-to-value ratios (LVR), the official cash rate seemingly in a freefall – such a huge amount of change over a relatively short amount of time has almost certainly put a fair number of people on the back foot. However, when one door closes, another opens, or so they say: And that is true for property investment as well. So why are people so worried about the current market?

Interest rates on the rise?

People are worried that interest rates have hit an all-time low – and any mortgage they take on now will only get more expensive.

One of the primary barriers to property investment, particularly for those new to the process, is the sheer cost of servicing a mortgage. The high capital gains that Auckland and the surrounding towns has seen likely makes it a tempting proposition, but the fact that the median value of an Auckland home is getting close to $1,000,000 is likely putting people off. 

Combined with the new LVR restrictions, such a high buy-in price combined with the potential of a concurrent mortgage for your own home is certainly a hurdle – but not one that can't be overcome with the right advice. According to ASB, people are worried that interest rates have hit an all-time low, and any mortgage they take on now will only get more expensive. With the official cash rate now cut to 2.0 per cent and Westpac recently announcing a record-low 3.79 per cent home loan rate, that perspective is understandable.

However, the fact is that this may very well not be the end of the road for interest rate cuts. Bank interest rates are intrinsically linked to the official cash rate – a cash rate that both the Reserve Bank and Chief Economist Tony Alexander from BNZ thinks are due for another cut soon. It may not seem like interest rates have further to drop, but you might be surprised by how low it can go!

Squeezed out of Auckland

The baseline for homes in Auckland is now at an all-time high, particularly in comparison to income.

Another major issue identified by the ASB survey was the fact that the baseline price for homes in Auckland is now at an all-time high, particularly in comparison to income. The now-infamous Demographia survey has placed Auckland near the top of the least affordable cities in the world for this very reason.

Yes, it's true – central Auckland is very expensive, and it is difficult to purchase a property there. However, people seem to forget that there really is a world of investment outside of Auckland. Hamilton, Tauranga and now Whangarei have now all seen enormous value increase – some even outpacing Auckland. 

Plus, these zones have a far lower buy-in than the equivalents in the City of Sails. How much cheaper? Put it this way: the average property in Whangarei is half the price of the average property in Auckland, according to QV; and you would be beating them out in terms of capital gains as well.

Are you ready to build wealth in this new environment? Talk to us; we'll get the spring back in your step!

Here's to your financial independence!

Daniel Carney
Authorised Financial Adviser / Investment Property Expert

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