Blog: The Landlord says...

Last week I bemoaned the state of the housing market and the fact that we hadn’t seen much positive news in the November real estate numbers.

Well I feel happier this week after reading two surveys on what people are thinking about the housing market.

The key point being that many people are seeing the glass as half full and now is shaping up to be a good time to buy.

The first of the surveys was done by Landlords.co.nz and Mike Pero Mortgages, the second by ASB Bank.

A difference between the two is that the former is of investors while the latter has a more general audience including owner-occupiers.

With this difference in mind it is understandable that the Landlords.co.nz/Mike Pero one was more positive.

Two key trends to emerge are firstly, that people are getting more interested in buying residential property and can see opportunities.

The second, and slightly worrying for vendors, is that both audiences expect house prices to fall some more.

This also makes one of the other points a little more logical. More than half of the investors surveyed have increased rents in the past year, and at the same time interest rates are coming down. Both these factors are positive for investors and compensate, somewhat for the predicted lack of capital gains.

While I was unhappy with the news last week, this week I feel more positive and expect that we will see some more positive things happening in the housing market – however my caveat is don’t expect things to return to the level they were at 12 to 18 months ago. Those times are still years away. Big house price increases (some would argue any increases) are still well into the future.

The time now is for astute purchasers. Are you one of these people?

I was hoping for an early Christmas present in the shape of a strong housing market over November. Sad to say though, that the numbers out from both QV and the Real Estate Institute this week were a bit sad.

Depending who you listen to the market is bottoming and could even be showing a little bounce. Maybe the first tentative signs of recovery.

The big issue though is the one of volume. The number of sales is still tiny compared to a year ago and this is what is really hurting many people in the industry.

I would have thought that falling interest rates would be creating more activity in the market. Maybe it is just too early to see it, as it takes time for the deals to come through and be reported.

Likewise the argument that banks have tightened up their lending criteria isn’t likely to be showing through either.

It’s unlikely we will see them next month, as December is traditionally the lowest and slowest month of the year. People are more focused on other things (parties, presents and getting all those jobs done before the year is out).

If one is looking for a ray of hope in the residential property market it is this: Prices haven’t fallen as far as some commentators have predicted. The latest numbers could be a plateau. Only time will tell.

There are signs that support the market such as interest rates, increased affordability and tax cuts. I would argue that as interest rates keep falling people are going to realise that term deposits and the like will be giving very little, if any, return and they will once again look at growth assets like shares and property.

While I didn’t get the early present I was expecting, hopefully Santa will be kind to me in two weeks’ time!

A massive cut in interest rates is bound to spark the languid property market into life, even though we are moving into the silly season, aka Christmas.

The Reserve Bank, today, cut its official cash rate (OCR) 150 basis points bringing it down to 5.0%, a number we haven’t seen for a long time and one which six months ago we could only dream of.

During the day a number of organisations have cut their lending rates, but few have passed on the full 150 points – yet. The biggest mover is SBS which has taken its floating rate to a market low of 7.20%.

What is worth noting though is short-term rates, including the floating rate, are for many lenders at four-year lows.

These big cuts over the past few months are changing the numbers of investment properties. This means it is getting easier to make them cash flow positive, or at least get pretty close to a neutral situation.

I don’t think that buyers will automatically change their approach to buying. Not if the auction I went to today is any indication. There the most, actually only action, was a mortgagee sale, where quite a few bidders became involved. It was clear their intention was to pick up the property for a song.

What it indicated was that investors are looking, but not getting carried away with prices.

The cut in finance costs may allow them to up their prices a bit more or be less cautious in their approach.

The other event which may change sentiment in the market is the government’s guarantee on deposits. This may help, as surviving finance companies are now getting money rolling in the door and that is helping their liquidity, but also allowing them to resume making loans again.

While most of this lending will be in the commercial and development markets, it may just be enough to help get the market moving again.

If it does start moving it is likely to be slow, rather than a quick, accelerated pick-up.