Private property issue #26 - Two significant announcements

Private Property – our weekly newsletter that gives you insights into what's happening in the NZ property market. Written by managing director Andrew Nicol. Sign up to receive this in your inbox every Thursday.

The Reserve Bank had the media oozing doom and gloom this week.

There were two significant announcements –

#1 – The OCR is now at 3% (up 0.5%)

(I’ll talk about this in next week’s Private Property) … but the one that caught the media’s attention was the prediction that:

#2 – House prices could fall 20% from the top of the market

This is an increase from the 15% fall they predicted just 3 months ago.

But there were 3 critical opportunities hidden within the Reserve Bank’s data that the media haven’t picked up. Here’s what they missed.

#1 Property prices will bottom out earlier than first predicted

When you look at the Reserve Banks' prediction, they have pulled forward where they think the bottom of the market is.

They initially had prices bottoming out in March 2023. They’ve now pulled this forward by 6 months to September 2022.

Important point ­– this does not mean September 2023 is the exact date that property prices will bottom out.

We had Tony Alexander in our office yesterday, recording episodes for the Property Academy Podcast (see the photo below).

When asked when the market would bottom out, Tony’s best guess was 3 - 6 months earlier than the Reserve Bank initially predicted.

This means the “trough” – the bottom of the market – is going to hit us earlier than initially thought.

So, if you want to get a well-priced deal, get your skates on. The window of opportunity is smaller than we thought.

#2 Property prices will increase faster than initially thought

Take another look at the graph. What hasn’t changed?

That’s right – the end game.

While our central bank is predicting a sharper fall than they were 3 months ago, they are still expecting house prices to reach the same point by June 2025.

So, even though house prices are expected to drop further, they will recover faster and recover to the same point.

This creates an opportunity, which brings me to the final point.

#3 Property prices will increase further than initially thought

Let’s say you could time the property market perfectly (you can’t by the way, but let’s pretend you can).

The RBNZ’s updated forecast says that prices will rise 11% from the bottom of the market until the end of their projections – just 2 years later.

That 11% over 2 years – just over 5% a year.

So, if you bought an $800,000 townhouse in Auckland and it followed the market, it’d be worth an extra $88k in 2 years (according to the central bank’s forecasts).

This combination of sharper downturn + sharper recovery clearly equals opportunities for buy and hold property investors.

So… when should I buy?

This is the ultimate question. But the thing is, none of us can time the market to absolute mechanical precision.

So, don’t look at the above graphs and say: “I’m going to buy exactly in September 2023.”

Because in 3 months, the Reserve Bank will release new house price forecasts, and the trough could well move again.

But here’s what you need to keep in mind if you’re considering an investment:

1. The number of properties listed for sale is double what it was last year … and prices are down 10%. This presents the opportunity to negotiate.

1. Your negotiation power is at its highest when prices are falling … this is where sellers are most nervous. Once prices stabilise, this will become harder.

1. The sellers most willing to drop their prices and meet the market are developers building new builds. These developers must sell properties to keep the lights on. So, they are dropping prices to meet the market.

Homeowners and investors can afford to sit on their hands and wait to sell.

Key message: There is a window within the next 8 – 11 months where you can use this information to get a good deal and prepare for recovery.

Tonight, I’m speaking in front of several developers in Christchurch. And this is the exact data I’ll use to get better deals for the investors working with my team at Opes.

P.S. Here’s a picture of me, Ed and Tony Alexander in the studio this week. Tony is an upcoming guest for 3 of our Property Academy podcasts due to be released from Thursday next week.

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