Is The Boom Back?

property

Real estate agents Barfoot and Thompson recently released their sale figures for May and the result are very encouraging. By Olly Newland

“The Auckland housing market experienced its busiest May trading in nine years, with the average sales price increasing by 2.5 percent in a month to $582,285. The market showed no signs of the slowdown that normally occurs as we approach winter,” says Peter Thompson, managing director of Barfoot & Thompson. “Sales for the month at 1,165 were the highest in a May since 2003, and were 31 percent higher than for the same month last year, and up 55.3 percent on last month.”

Barfoots are Auckland’s biggest residential real estate agents by far, and similar reports are coming in from other agencies large and small. We appear to have the beginnings of a major upswing in prices and demand, after several years of flat-lining, or, in some areas sliding back.

It’s not a boom yet, but we may not be far off at this rate. A boom has a prolonged and ‘solid’ feel and it’s clearly not there yet. The signs are encouraging (if a boom is what you want). These results, on top of the other indicators, show there’s life in broader real estate.

Of course this applies only to Auckland for the time being, but you can be certain that the effect will slowly but surely spread through the other main centres. As to be expected, not everywhere in the country is benefiting at present. Many smaller towns and cities are still mired in recession going nowhere.

But there are strong signals, there is more to come…

Interest rates

One of the major signals is the fact that already low interest rates are continuing to fall rapidly. It wouldn’t surprise me if we eventually end up with the cash rate set by the Reserve Bank between one and two percent and mortgage rates in the three to four percent range.

With the troubles in Europe and USA, investors will continue to put money into New Zealand because of our stability and stronger banks. Governments around the world continue to print money out of thin air to try to deal with the GFC and European debt woes. These factors will push rates worldwide down further still and, barring unforeseen events, I am picking rates will stay down for a long time yet.

Look at it this way; lower interest rates are in effect a wage rise by other means, and a better way to prevent a cost price spiral from forming. This in turn makes property investment more attractive.

We have seen this already with several commercial properties recently selling in Auckland for around the four percent yield mark, which was unheard of until now.

Where is the pressure coming from?

  • Very little new construction of ‘affordable’ housing
  • A decades worth of houses lost through the leaky home crisis
  • The tragic earthquake in Christchurch destroyed thousands of homes
  • The huge add-on costs of building new houses, not to mention GST and council fees
  • Immigrants who consider Auckland as a paradise for housing as compared to the overcrowded towns and cities they come from
  • Lower interest rates which allow greater borrowing
  • Rising rents due to the shortage of housing and recent tax disincentives all of which act as major upward drivers of prices.

One of the traps for beginners is to regard the CV (Council Valuation) which is carried out for rating purposes, as an indicator of market price, and assume the property will sell for around that figure. As often as not, the end price bears little relation to the CV.

This can be caused by a number of factors such as major upgrades having been done since the last CV, or the downward value of plaster-clad homes.

In my view, CVs are best ignored or if used, seen as a very rough guide only.

With more than 45 years in the property game, Olly Newland provides a consulting and mentoring service for people committed to make serious progress with property investments. Whether it be buying, selling, holding or troubleshooting. If you’re interested in knowing more, visit Olly’s webpage at www.ollynewland.co.nz

Author: magazinestoday

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