05/08/2024
Let's go back to check the history and you would see it looks familiar with the events happened between 2018-2019
After Labor party took adminstration in 2017 and hostible policies were issued to control the housing market. Business confidence were historical low at that time due to uncertainty of adminstration government and housing price was dropped dramatically between 5-11.4%
Now you could check business confidence is -34% as I remember , which means business confidence is historical low again due to interest rate.
As I remembered lots of people criticized affordability of housing, but now housing become affordable but serviciblity of people is not enough to serve the affordable price again.
That's the reason that I always tell my buyers who should purchase the houses when they are able to do that, especially in current situation, less people could afford the housing price and if you could have mortgage approved which is a kind of privilege to secure a house for yourself and wait for next round to upgrade your house.
A couple for reasons for housing marketing decline
- High interest rate to reduce the return of investment, investors prefer to keep their cash in the bank with 6% interest rate ( now 5.75%) , for example if you purchase one investment property with 35-40% LVR on 1m dollar house, you could collect 24k interest if you pay 40% of 1m with no risks at all.
But if you purchased one property at 1m with 600k mortgage, your mortgage will cost you 36k ( interest ONLY), Before 1st April 2024, your rental income can't be deducted as the cost and full income tax is applied on your rental income , which means you would lost 20k roughly per annual. Less investors are in the market although investors would like to buy a investment asset.
- High interest rate to reduce the people servicibility accordingly and affordability is getting thinner. Housing price is getting lower and lower, in another side, does demand disappear OR demand is suppressed accordingly? Let's see back to 2018-2019, demand was suppressed and it exploded between 2020-2021( QE also put the wood into the fire accordingly)
- Uncertainty for employment which is definitely happening when economy is not good because business might be liquidized or bankrupted accordingly because inflation need be control, and consumption need be control, Less business and high interest rate ( funding costs)
Let's see 14th August what RBNZ would do ? Keep holding the rate or Cut the rate before USA would do
Read the July 2024 Auckland housing market update from Barfoot & Thompson.
