BusinessDesk investments editor Frances Cook responds to emails from readers each week to answer questions about money. Below you'll find her expert advice. Send your own questions to [email protected].
Hello, my name's M and I’m looking to buy my first home soon within the next year at least.
I wondered in your opinion if the house prices in New Zealand (south Canterbury) will keep dropping. Do I wait it out?
Thank you,
M
Hi M,
Short answer – do I think house prices will keep dropping? Probably. Can I tell you for sure? No, and don’t believe anyone who says they can.
Would I wait? Personally, no.
Here’s why.
Learning from history
In early 2020, like everyone else, I was stuck in my house trying to do my job from home.
At that point, I was basically doing the news version of asking “wtf?” repeatedly. I wrote lots of articles, hosted some webinars, and I talked to lots of experts. Most of those conversations were asking what would happen next for our money, and particularly the housing market.
All the experts agreed. House prices were going to fall.
Some people said they would fall 15%, and the most optimistic people I talked to said that house prices would “only” fall 5%.
What happened next? House prices jumped up an eyewatering 45% through 2020 and 2021.
It’s not that these experts were stupid, or that I talked to the wrong ones.
It’s that it’s really, really hard to predict the future, even when you’re smart and have a lot of information in front of you.
What now?
So the prediction now is that house prices will probably fall 15% by the middle of next year, and then maybe start to go up again.
But could that be wrong? Absolutely.
Prices have already fallen around 11%. So from here, you have two possibilities.
You could hang in there, hoping to wring out the last 5% from the market. If you get it wrong, you risk missing your moment, and not getting into your first home.
Or you could start house hunting now, get the best bargain you can, and then stay put for several years so that any more bumps in house values get lost to the passage of time.
Prices might keep going down, and you’ll feel annoyed that you missed out on more bargains.
Or prices could surprise us all, bounce up again, and you risk missing out entirely.
Out of those two options, which one do you feel is the riskiest for you?
When it comes to buying your own home, the most important factor in my opinion is whether you can afford the deposit, and then afford the mortgage repayments.
You absolutely should shop around, try to get the best bargain you can, and negotiate hard with the seller.
But trying to make big financial decisions based on future events that are out of your control, is likely to end in tears.
Even if you do buy a house, and prices dip down a little more, it won’t matter too much to you.
You should buy a house and plan to live in it for at least five years anyway.
Otherwise, you risk losing money, even if your house value goes up. Moving on too quickly means spending a bomb on real estate agent fees, interest rates, moving costs, and other various things that can eat into any money that you’ve made from values increasing.
If you buy and expect to stick around for five years or more, it would be rare to do badly out of your home.
First home buyers haven’t been in such a powerful position for a while. If you’re able to start the house hunt, personally, I reckon it’s a good time to be looking.
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Information in this column is general in nature, and should not be taken as individual financial advice. Frances Cook and BusinessDesk are not responsible for any loss a reader may suffer.
