12 Oct Tony Alexander: FOMO’s back – why Auckland is primed to lead the next house price surge
Original Source – ONEROOF.CO.NZ – 19 July 2023
Article repurposed for our blog.
ANALYSIS: Each month, I / Tony Alexander conduct five surveys among my 31,000 subscribers of ONEROOF to gain firsthand insights into the economy, particularly the housing market. This week, I ran a survey of mortgage brokers with the assistance of mortgages.co.nz, and the results are quite interesting.
According to the survey, a net 62% of brokers have reported seeing an increase in first home buyers in the market. This is the highest result since June 2020 when a record net 79% of brokers reported more young buyers. Despite rising mortgage rates, it appears that young buyers are still the driving force behind the growth in the housing market.
However, when it comes to investors, the survey reveals only a slight increase in their involvement. A net 23% of brokers stated that they are seeing more investors seeking advice, which is the same as last month and aligns with the figures from the start of the year. Interestingly, many brokers have noted that investors don’t seem particularly determined to make purchases at the moment.
Upon further examination of the brokers’ responses, it becomes clear that investors are waiting for the election to be over and any potential changes in tax rules to be introduced. Some investors are finding that the numbers don’t add up for running a rental accommodation business, leading to cautiousness in making new investments. This situation reflects a similar trend in Australia, where high financing costs have prompted investors to sell, even though there is a high demand for rental properties due to record net migration.
Contrasting the situation for investors, our own record net immigration in New Zealand is making it easier for landlords to find good tenants. This ease in finding tenants, coupled with the tightening rental market, may be one of the factors encouraging young people to consider homeownership earlier than they had previously thought.
Another aspect I investigate in my surveys is the preferences of borrowers when it comes to fixing interest rates. The survey shows that only 10% of borrowers prefer a one-year fixed term. In contrast, 38% opt for an 18-month term, and a majority of 45% choose a two-year term. These figures suggest that borrowers are positioning themselves to take advantage of falling rates in the future. We are currently at or near the top of the rates cycle, and borrowers see the value in securing favorable rates when they eventually decrease.
In addition to surveying mortgage brokers, I also survey real estate agents each month, and the results from my most recent survey indicate a net 63% of agents have observed an increase in first home buyers and 14% have seen more investors. The agents have also noticed a rise in attendance at open homes and auctions, and a net 38% agree that prices are rising in their respective areas of operation. This further reinforces the upward trend of the housing market, with demand growth surpassing supply growth, driven primarily by first home buyers.
Looking ahead, next week, we may have a new government formed, and this will provide us with a clearer view of the policy environment for homebuyers and those looking to make a purchase. I don’t anticipate any significant changes in the uncertain interest rates outlook. However, if the rules are modified to reinstate interest expense deductibility for investors, it is likely that young buyers will experience FOMO (fear of missing out) and intensify their efforts to enter the market before investors enter in greater numbers.
To conclude, based on the survey results from mortgage brokers and real estate agents, it is evident that young buyers continue to be the driving force behind the housing market’s upturn. Investors, on the other hand, are showing less determination to make purchases and are waiting for the election and potential tax rule changes to pass. The preference for fixed interest terms indicates borrowers’ eagerness to position themselves for future rate drops. As we move forward, the formation of a new government will shed light on the policy landscape for homebuyers, while any changes in interest expense deductibility for investors may stimulate even greater demand from first home buyers.