It seems like everywhere we turn these days all we see and hear about is this mysterious ‘housing bubble’. Between social media and news, we are constantly bombarded with doom and gloom articles about the bubble bursting. Let’s start with a basic explanation- a housing bubble can be described as a temporary condition caused by speculation, demand and exuberance in the housing market that leads to a rapid increase in real estate prices aka the real estate boom. At some point though, demand decreases or stagnates while at the same time, supply increases (to meet that previous demand) resulting in a sharp drop in prices…the bubble bursts. Is there a bubble in New Zealand? Yes, definitely.
The housing bubble could be coming to an end, at least in Canterbury, with the market showing certain signs of slowing. How can we tell? There are fewer Auction sales happening and less mortgages being written, for the 4th month in a row. There is absolutely no doubt that the Reserve Bank’s new LVR rules are starting to bite, as while officially implemented in October, were being adhered to by Banks from the 20th of July 2016. Our particular housing bubble was caused by several things with high net migration and low interest rates probably being the top two reasons, but finally, the Reserve Bank may be winning- mortgage interest rates in the longer end have come off their lows due to cost of funds overseas and internal Term Deposits which will also slow the market.
It is time to consider thinking long term. Perhaps it is time to start locking your mortgage in for a slightly longer term, say 2 or 3 years. Even if you are currently locked in, you may be pleasantly surprised at how cheap it is to break a fixed rate mortgage, especially in it’s last 6 months. The thing is, you don’t know what you don’t know, so give us a call to review your current situations and options.