New year, new... Home? Job? Opportunities?
Happy new year – 2024 has started off with a bit of a bang already.
A new government bringing in new policies that will affect the housing market
Wholesale interest rates dropping substantially, setting things up nicely for a drop in home loan interest rates
Leading economists predicting that house prices could rise by up to 10% this year.
If you're planning on making a move with property this year, be it your first home or your 50th, strap in and read up because it will be an interesting year.
Return of the landlords?
The government’s announcement to reinstate interest deductibility for landlords is predicted to see landlords re-enter the market – they've been largely absent the past few years.
With interest rates as they are it's going to be very hard to find a rental that will actually cover its own costs.
My numbers show that buying a standard 3-bedroom townhouse in Kenepuru and renting at market rates would still cost a landlord $2,000 out of their own pocket each month just to cover rates, insurance and mortgage costs.
However, interest rates are predicted to start to trend downwards, so things could change fairly quickly on that front. My guess is that all of the new-build townhouses that have been sitting on the market for a while now around Wellington will start to be snapped up by investors, as things tip in their favour.
Battle of the buyers?
Generally speaking, investors go head-to-head with first home buyers. Both groups tend to operate in the same price space, are looking for entry-level opportunities and are therefore competing. My key message to first home buyers in 2023 was to get on the ladder as soon as you can, and this sentiment remains heading into 2024. Get ahead of your competition.
Interest rates ready to drop?
While our Reserve Bank doesn't necessarily want rates to drop too quickly (they think it could be inflationary), the costs to banks to secure the funding they then lend on to us through mortgages has dropped pretty sharply recently.
This means the banks now have higher than usual profit margins in their rates – they're making more than usual.
What usually happens with rate drops is all the banks will hold off until one pulls the trigger and cuts rates, then they'll all follow.
This is what I'd expect to happen. You'll probably see some of the smaller lenders go first and try to use this as a marketing tactic to pick up easy refinances, and good on them – but I wouldn't jump ship too quickly, as generally speaking banks will match competitors’ rates.
So, while this is an overly simplified summary, it's fairly safe to assume rate relief is on the way at some point soon-ish, but exactly when and just how much? Let's wait and see.
Borrowing boom?
The flow on effect is that when rates drop, so should the test rates banks use to assess mortgage applications. This should mean we can all afford to borrow more in the bank's eyes, and will likely open doors to lending that may have been closed for people in the last wee while, which could ultimately drive house price rises.
House prices to rise?
Independent economist Tony Alexander is predicting house prices could climb by up to as much as 10% this year, due to huge immigration gains and the easing of monetary policy, among other things.
Data from late last year showed prices starting to trend upwards around the country, so this could well be a reasonable prediction. With that in mind, things should get better for sellers – and when you're buying and selling in the same market it's all relative.
However, for first home buyers or those not also selling, time is likely running out to take advantage of the market. First home buyers should act as soon as they can, as waiting isn't likely to favour them.
New year, new opportunities - and new risks?
Many of you may be starting the year with a new job, a new salary, or be planning to make a change this year, which is exciting. But when things change (be they good or bad), so do your risks. It's important to check in and make sure that you still have a plan to deal with the unexpected, should it come your way.
For example, taking a new job with a higher salary will mean your lifestyle in time will likely adjust to be reliant on that higher level of income. Has your income protection insurance been increased to support your new earnings?
Checking in to ensure your insurance stays up-to-date and working for you is easy - just book a quick review.
Note this article is not intended as personalised advice, and should not be acted upon without seeking independent personalised financial advice from a qualified professional.
