A local buyer has sold his house, waiting for the transaction to go unconditional before committing to a new home.
Meanwhile, he looks at his options.
Among the market experiences in the past couple of weeks:
A beachfront (as in, beach across the street) house goes to auction, doesn’t get a sniff at $700,000 but the owner was hoping for $900,000. Will that happen? My observer thinks it’s most unlikely.
Houses around $300,000 are still selling readily.
Houses around $5-600,000 are struggling to find ready buyers. Banks need an unconditional sale of the buyer’s home before they’ll entertain the loan for the new one.
A home with good sea views went to auction with a target price around $600,000, got a $520,000 bid. The owner contacted other interested parties to see, if they were still interested, whether they’d offer more. Take the offer before prices fall further, my observer suggested.
My observer also found investors had pulled out of the market, leaving only owner occupiers to bid. That made auction of debatable value, whereas a year ago taking your property to auction was likely to result in an offer far above your expectation if you’d put a price in the ad.
Key questions for the person who’s sold to consider:
Will prices carry on down?
Will the Reserve Bank act again this year to dampen house price expectations?
With high equity being paid out (90% of $400,000) on this seller’s settlement, does it make sense to put the cash in the bank, rent & watch the market trends, ready to pounce at the sign of an upswing?
And that brings back the Don Brash factor. National Party leader Dr Brash told a breakfast audience this year his oft-reported antipathy towards buying a house several years ago, when he was Reserve Bank governor, was at a time when his marriage had broken up and it was far cheaper to rent than to pay the interest bill on the houses he was being offered.
Now, the receiver of $360,000 might, in a rising interest market, get $25,200/year at 7%, and on a $360,000 house rented at $350/week (a 5% yield) would pay $18,200 for a full year’s rent.
A crucial factor in investment intentions is the trend in interest rates.
View from the ANZ’s economists
ANZ Bank’s economists said today kiwi bank bill futures remained heavy and the market was slowly moving to price a December official cash rate rise by the Reserve Bank, although the shortness of the local market & relative risk reward might start to slow the sell-off in the first 2 contracts.
The economists said the short curve was still inverted between March-June 2005, indicating the market still perceived the need for the Reserve Bank to reverse its policy in the 2nd half of next year.
For the moment, however, another cash rate increase remained “a done deal”.
The ANZ economists said the 2.1% gdp increase in the March quarter significantly widened the output gap, which now sat around 1.5. That meant 2 years of growth rates below 2.5% would be needed to alleviate excess demand pressure.
“While monetary conditions have tightened and migration is receding, buoyant commodity prices,
expansionary fiscal policy & infrastructure investment imply a lengthened economic cycle & continued pressure on resources.
“Current market pricing anticipates a flat official cash rate track beyond October and potential easing in early 2005.
“We believe that monetary policy is set to play a more restraining role on activity with a further 25
basis point hike in the official cash rate sealed for October. The risk profile points to a 30% chance of a further 25 basis point increase in December.
“Irrespective of this, market expectations of a cut in the first half of 2005 look increasingly at odds with the economic fundamentals and inflation & capacity pressure.”