Hear me out, I know there has been countless predictions. Even I have been guilty of making the odd click bait type article suggesting the housing market might be at its bottom, albeit with huge disclaimers. But this time I feel a little more confident as there are a couple of undercurrents starting to work its magic. Along with one thing I noticed before the last decade of house price increases(before the crash).
In terms of under currents, there seems to be one major thing at play. As the old obscure saying goes “its the economy stupid” there is somewhat of a more obscure saying I will invent right here, “its the election stupid”. Next year the government will need to show some results, there seems to be one very easy way to get the economy going. House prices have a way of making people feel confident. There are a few things the government can do to help some positive momentum in this space. By positive, I mean more for home owners.
Central Bank Encouragement
Inflation – the government has been very vocal about bringing down the spending trajectory which they claim has led to lower inflation. Hence now lower interest rates. The next step which the RBNZ has surprisingly seemingly jumped on board with, is considering allowing banks to hold less capital than they would have liked. The big banks in New Zealand have been on a road map to increase the amount of capital they are required to hold. This is due to the RBNZ imposing a lot more Tier 1 capital to be held by 2028.
If the RBNZ does reach a softer approach, it could mean interest rates have downward pressure. This could be immediate and across all the fixed terms (novice guess). How much? This is hard to guess as even at the start of this new trajectory towards a higher level of capital there were estimates of .08% for every 1% increase in Tier 1 capital. At a complete guess there could be a .2 -.4% drop in cost of funds.
RBNZ looks like it is also comfortable with inflation staying at the higher end of its target, if it means giving some live back to the economy.
Overseas buyer ban to ease
Overseas buyers might not mean a lot more buyers exactly but it does leave a bit more money floating around at the top end. It seems the government is tinkering with different approaches softening this. Investors in businesses will be able to get a fast track to get their visa but it might help to enable them to buy a home early.
Something I saw last time
Houses in many parts of the country are just sitting below cost, this can not stay like this for long with inflation bedding in. Along with one other point that many will work out if interest rates start to touch low fours. If the gross yield from a property investment in 6.5% or above, it almost becomes a no brainer. At these levels the investment pretty much pays for itself. I remember seeing this kind of equation early 2010’s, when I started a lot of my investment journey. It seemed to be the bottom of the market and then house prices corrected upwards to become more inline with replacement costs.
