Will rising interest rates and inflation tank the New Zealand property market?
I'm Andrew from Mortgage HQ.
Today we're going to talk about what's going on in 2022 with inflation
and interest rates.
So interest rates seem to be going up.
Inflation is currently at a certainly in the last couple of decades a record high.
So what is going to happen to the property market?
Well first of all what we're seeing is a lot of vendors while a lot of people
wanting to sell their property more then than we've seen previously.
Because people are not able to buy investment properties
and keep their current property as much as they have been in the recent past.
So a lot of people, they want to upgrade, they want to downsize or want to move.
And so they need to sell their property.
Now, what part does inflation have in this?
Well, the nominal earnings for most people is going down,
and that is especially hard with all of these pandemic influences.
So there's less property investors able to take action.
Is that going to tank the market?
Well, I don't think it's going to tank the market.
I think it might flatten or stall the market.
There's still a lot of potential first time buyers.
There's still a lot of cashed up investors that can afford to buy properties
at the right price.
And I feel like a lot of people know our client base is very much property
investor based.
They have been waiting for opportunities to take action.
They have a lot of equity.
They have strong cash flow.
So in the absence of the second and third home buyer property market,
where people have traditionally, that owner property for a couple of years
and then they look to buy a second property.
That market might slow down a bit because they're small business owners.
Their salaries might not be increasing as fast as inflation.
They can't keep up with the high interest rates.
But there's a lot of cashed up investors that are going to keep
the market prices high.
And there's plenty of first time
buyers around that are very happy to go into negotiation.
And that the banks, because of the CCCFA changes their appetite for lending
is is going up because they have been hit in the last couple of months.
They haven't been able to do the lending they've wanted to do.
Now we're starting to see a willingness to lend to those low deposit lenders
to make deals happen.
So there should be proportionately more first time buyers coming through.
There might be less of that mid-tier investor, but the market is very
well supported by established property investors that have strong cash flow,
they've got strong business income, they've got a lot of equity.
So you're not going to see massive, massive bargains at an average
because there are plenty of buyers and there's a lot of demand,
especially in the metro areas and Greater Auckland areas.
And that Auckland market kind of impacts the whole New Zealand market.
So as long as Auckland is a highly desirable place,
especially internationally, we're going to attract money
from Singapore, from Australia, from immigrants that are coming in
and that's going to support the house prices where they are.
There's plenty of buyers for good properties at fair prices.
So we shouldn't be too concerned about the property market tanking.
New Zealand lending market is very safe.
It's not like The Big Short movie.
''So do applicants ever get rejected.
Look, if they get rejected, I suck on my job.'' Inflation
as long as it doesn't skyrocket up to 10%, as long as interest rates
don't go much above where they are now, it's a pretty safe market.
And just bear in mind when you're talking about
when you listen to the economists they are often wrong.
So if somebody starts saying things like five, six, seven percent interest rates
don't read too much into that because scary headlines sell subscriptions
just bear in mind that it's probably less than 50% chance
that they're right because they often can't predict what's going to happen.
So if you want to own a property,
now is a great time to start looking at the market.
Despite the interest rates going up, you get tested on your affordablity
and you just make sure that you're challenging
your boss or you're increasing your prices.
If you own your own business, that your nominal income keeps up with inflation.
Actually take it as a chance to increase your prices or negotiate salary
so that you're getting maybe an 8-10% bump to more than cover
the recent inflationary gap and the next one because inflation
is probably going to stick around for just a little while longer.
So 10 year mindset,
prices are going to be a lot higher in ten years than they are today.
What does inflation do? It erodes your debt.
It erodes the proportionate debt.
So if you buy a $1.2 million property and you use a 900
K mortgage in ten years, that property will be worth $2 million.
Even if you don't pay off the mortgage, that's only $900K.
Your proportion of ownership just skyrockets in that time.
So understand inflation, understand
the impact of interest rates, but don't get scared about taking action
Let me know any questions or comments
down below.