Property: In the New Zealand property market, we’ve seen house prices take a significant dip since their peak in late 2021 – depending on what you read and the day you read it on, it could be as much as 17%. That home purchased in 2021 for $1 million? It’s now sitting at about $830k. After accounting for real estate commission, there wouldn’t be much left over if a property like this had to be sold quickly.
Let’s not just look at the numbers at face value, though. Inflation has been a sneaky one out there doing some damage without being called out in much mainstream commentary. If we consider the Consumer Price Index (CPI) as a starting point, then also consider the staggering idea that as much as 40% of the money in circulation today was created in just the last four years, the real value of that property might be even less.
So, while now might be a buyer’s market, it’s certainly not the best time to be a seller.
Gold: A safe haven in times of uncertainty? Amidst all the economic and geo-political uncertainty of late, gold has indeed shone brightly. It’s outperformed many traditional investment options like the S&P 500 with a 40% rise in the past two years. Gold is just a shiny lump of metal I hear you say. You’re right! It’s a safe-haven lump of metal that tends to thrive when other things begin to falter. It’s also a portfolio diversifier, which means it may zag, while other investments zig (shares and property). While it doesn’t yield income, its value as a form of money, especially in times of geopolitical uncertainty, can’t be understated.
The inflation battle: A recent report by the FSC of NZ paints a grim picture: 94% of New Zealanders are worried about their finances, with many forced to tighten their belts. Inflation hits the middle and lower-income households hardest, because they are the ones that spend most of their income (on items now much pricier) and often have the highest amounts of mortgage financing for their housing requirements. Inflation, and the battle to stamp it out, is potentially the leading cause to business failures, forced property sales, and even personal crises. The question on everyone’s mind is, how did we get here? Is it the fault of greedy business owners or property speculators? Well, maybe a little? Let’s not ignore the bigger, more obvious elephant in the room: government spending in unproductive areas and central bank policies since March 2020 might have played a more significant role than what we’re led to believe. If we’re to avoid another cycle of boom and bust, we need to address these root causes head-on.
How long should you fix for in a falling rate environment? With GDP Live predicting another 0.25% cut in the official cash rate this October, what’s the smart move for borrowers? A floating mortgage could be your best bet to immediately benefit from rate drops, though it’s also the costliest option. Alternatively, a 6-month fixed rate might offer a middle ground, less expensive than floating but more than a 1-year fix. The choice really depends on whether or not you feel the interest rate market is ‘efficient’, and whether there’s a contrarian view more accurate. While the RBNZ sets the OCR, market forces dictate mortgage rates. Trying to time the market might be futile, however it is interesting trying; instead, consider your mortgage strategy as risk management excercise.
he New Zealand property market presents a double-edged sword: it’s potentially a great time to buy but not really a wise time to sell, if it can be avoided. With economic indicators flashing ‘uncertainty’, there is light at the end of the tunnel (and no, it’s not a train). Perhaps the best strategy is to stay informed, keep an open mind by listening to diverse views, and watch the levels of inflation and the price of gold. They have far more to say about what’s coming.
Of course one final point – this isn’t financial advice, but you should approach your financial decisions with a mix of caution and strategy. Whether you’re buying, selling, or holding, be honest about what’s happening in your own world, then consider the broader economic context.
Watch the full video: https://youtu.be/2-mRa5fewtA
