FOMO Vs FOOP

There has been considerable talk about house prices falling and although at a lower rate than elsewhere there are signs of this in Christchurch. But it is more one of stabilising than dramatic falls. Commentators believe these falls will continue but we have to ask if these are real. Last year property prices increased by up to 30% in some places – an unrealistic and unsustainable increase. Unless you purchased last year a small drop is not going to impact you harshly. Last year it was FOMO (fear of missing out) whereas today it is FOOP (fear of over paying). Buyers are intentionally staying out of the market with the hope that ‘ bargains’ will be available later in the year. The market will sort itself out over time.

The key issue impacting on price, outside of mortgage criteria changes, is that of supply. Last years increases were driven in part by a shortage of properties. Today in parts of the country there are over 3 times as many properties for sale – it is becoming a buyer’s market. In every market there are some who are just testing but there are others who for various reasons have to sell. They are being targeted by astute buyers/investors and they are lowering their price expectations in order to get a sale. The old supply vs demand principles.

Also impacting the market are interest rate increases. The Reserve Bank increased the OCR by 1.0 point last month and it is expected that they will increase it again by either 0.25 or 0.50 point this month.

This has an immediate impact on interest rates – new and existing – and further reduces the buyer pool. We read somewhere that there are over 150,000 fixed term mortgages about to come to an end with those borrowers facing a significant increase in interest rate.

Research by banks indicate that up to 49% of home owners who mortgaged within the past 12 months could face severe ‘serviceability stress’ should interest rates reach 6% which several are anticipating will be the case in the not to distant future. Believe it or not for some borrowers this could mean an additional $25,000 pa in mortgage costs – that’s from tax paid income. The average mortgage according to the Reserve Bank was $547,800 at end of 2021. Last year this would have been at 2.6% interest. Even though some of those buyers will have made up to 30% on their property last year they will still need to ‘sell down’ as they don’t have the cashflow to meet mortgage commitments.