I read this news article the other day regarding a forecast of house price in Auckland that would be cheaper in 12 months. The economist from the article said that he didn’t think the price will be cheaper due to strong “backlog” of people waiting to climb up the property ladder, and thus a solid support.
He also mentioned that these people are largely composed of people who are still living at home or living with friends, or have withheld from forming their own household simply because there is no opportunity for them to buy into the market.
Sometimes the economists comments make me laugh. Based on the facts mentioned above, many people in his description have been financially vulnerable, because they are not able to serve the mortgage and thus rejected by the banks. Can these people form the strong “backlog” to support the property price?
The price drops a bit at start because vendors sell off for many reasons, but largely due to worse economy. When this happens it means job cuts on the way and the bank will further tighten loan supply, which raise the bar to mortgage and reject more loan applications. So you got my point now? Where is this strong “backlog” of buyers then?
What about immigration? Immigrants from the UK (Brexit) and from the US (President Trump) may buy up Auckland and form the supports, the economist suggested. He may be right, but if you was this immigrant and think it through, you may disagree. As a mover to a new country, what will be the foremost thing (financially) in your mind? Security of your assets/income source. Even though the property price in Auckland is way cheaper than that back in the UK or the US, when you just moved to NZ and were unemployed or had no stable income source, do you think you’ll buy a property? Or will the banks give you a mortgage? I don’t think so!
Many so-called experts make their living by talking; if they were right most of the time they did not need to sell you his advice – he’d be a millionaire or a billionaire by acting alone on his own thoughts.
As a smart investor or trader like yourself, think before you leap into their sales pitch!