As interest rates rise and house prices start to come down, the market is seeing a rise in mom-and-pop property investors contemplating whether to sell their investment properties in the expectation that times may get tougher, said Ray White Mairangi Bay agent Drew Miller.
New data from the CoreLogic House Price Index showed home prices might dip a further 15-20% in the second half of 2023.
On top of that, while increases in the Reserve Bank’s official cash rate (OCR) are forecast to peak at 5.5% this year, mortgage rates are likely to remain above 7% as long as inflation remained high.
Miller said compounding this change of market tone is that a high percentage of mortgages will expire before the end of the year, compelling debt holders to refix their rates at the latest figure.
“This means a lot of interest rates on mortgages at the same time will be going from about 2.5% to 7%, and possibly 9%, before the end of 2023. That will eat into people’s spending patterns.
“People are starting to worry if they will be able to afford their mortgages. Expect a lot of properties to hit the market soon as those concerns become real,” Miller said.
When this happens, he added, there will be a “whole lot of sellers competing in a very small market of buyers” which will likely push home values down in a race to the bottom.
“If you’re worried about the next 12 months, the best time to sell is right now. You don’t want to risk going to the books in a rapidly cooling housing market. That’s a recipe for profound equity pain,” Miller said.
He has noticed people already moving to downsize their property or ditching their investment properties as they eye the rising interest rates.
With an election scheduled for later this year, some people are waiting to see if a possible change of government might introduce legislation such as interest deductibility on mortgages. But if no policy changes appear to lighten the rising cost of debt, the housing market in 2024 will be well on its way to a new paradigm and prices likely won’t be as high, Miller said.
“Many are hoping National might get into government and then reverse the interest rate component on mortgages to make them tax deductible. For people living in their homes, that would be a great help.
“But presently, for those with rentals, it is becoming difficult to push these rising costs onto the tenants because the rental market is flattening as well,” Miller said.
He added that winter is probably the best time to sell since that season generally has less competition for properties.
“If you going to get out, get out now while the market is at the top, and then move back in when things crash again. It’s probably not going to get better than it is today,” Miller said.
Miller offered a few tips for homeowners thinking about stepping into the market.
1. Get an appraisal.
An appraisal older than three months may seem recent, but Miller said that will already be out of date in this rapidly changing housing market. An appraisal is an unbiased opinion of a home’s value and is required whenever a mortgage is involved in buying, refinancing, or selling a property.
“Most real estate agents will offer an appraisal of a home for free but getting it wrong could be costly. So, it’s always a wise decision to get a second or third opinion and compare them to find an average value,” Miller said.
2. Check your home’s health
Just like going to the dentist every few years for a general check-up, a home also needs to be kept at top shape.
“Ensuring a home has no major wear and tear is one part of this process, but so is ensuring all upgrades, renovations and additions are appropriately signed-off with the council for relevant consents. The sooner you can get this check-up process moving, the better,” Miller said.
3. Get good advice
It’s important to be prepared for rising interest rates and increased cost of living, but no one can foretell the future. Nevertheless, if selling isn’t going to be an option, but costs are expected to balloon, Miller said seeking out advice on tightening the belt can do wonders for peace of mind.
“Talk to a mortgage broker and a financial planner to make sure you can afford the worst-case scenario should the wider economic system get too hard to manage. It’s also advisable to set up a spreadsheet to monitor your weekly costs and keep a close eye on your budget,” Miller said.
For more information visit www.drewmiller.co.nz
