The Reserve Bank’s November announcement of a looming recession and increased interest rates was a tad scary for people looking to buy or sell. OneRoof asked a range of economists what they would do.
Tony Alexander, independent economist
Q: Would you buy or sell now?
It would depend what my goal was. If my goal was to find a house to raise a family in, I'd have no hesitation in buying because there is no competition coming from the investors and there's plenty of listings out there and the vendors are increasingly willing to negotiate to meet the market, so that's how I would approach it.
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If it was somebody looking to buy and sell in 12 months then probably no, if one was a speculating sort of a person. If I was an investor looking for a long-term hold to run it as a business, I would probably be out there looking but I'd want clarification on the rules - you know, election year. If National win then there will be a rule change (in terms of the tax deductibility rules) so I might hold off until I can get a better feel for what's going to happen there.
Q: If you were a first home buyer scared by a potential recession and even higher interest rates, what would you recommend?
You'd look to your personal circumstances. Do you think you're going to keep your job? Are you going to get a wage increase? If that's the case then it pays to sit back and realise if you go out to make a purchase there aren't going to be many other people competing against you. You're going to have the best range of choice out there than there's been for a great number of years for a first home buyer so in some regards if you can make the numbers stack up in terms of servicing the interest rates there then it's a very good purchasing environment for first time buyers because of the lack of competition.
Q: So you’re saying don't be too scared by the talk of higher interest rates?
Exactly, because floating interest rates are going to go up because they move almost in lockstep with the OCR, but as far as the fixed housing rates go a lot of the increase in the OCR is already factored in and there's limited further upside in fixed interest rates. Within a few months we're going to be talking about the peak in interest rates and then they go down, which is not for a while yet, but people will see the worst case scenario - that's what they can't see at the moment.
Independent economist Tony Alexander: “If my goal was to find a house to raise a family in, I'd have no hesitation in buying.” Photo / Fiona Goodall
Q: What was the intention of the Reserve Bank’s announcement?
The intention of the Reserve Bank was to scare people and I think they've done that very successfully, so congratulations for that because that's an important monetary policy weapon. The more they scare people the less they need to raise interest rates. If I was a first home buyer, the more your mates and everybody else is running around like a headless chook saying there's a recession coming, rising unemployment and the sky is falling, sit back and let them talk that way because it means that the interest rates won't go as high as most people are thinking and there's an increased chance you'll be able to make a good purchase, again with that long-term focus.
Kelvin Davidson, chief economist at property insights firm CoreLogic
Q: Would you buy or sell right now?
It depends on your perspective. I don't see that it makes any difference. If I was an owner-occupier and I wanted a bigger house or a smaller house or house for my family or a better school, I'd move whether I was buying or selling because (it’s the) same market. We’re seeing people are struggling to do that because for a while lack of listings were restricting movers but now I think the restriction is conditional offers and no bridging finance and these sorts of things, ‘I'd love to buy your house but I've got to sell mine first’, so those conditional offers seem to be slowing things down.
Reserve Bank Governor Adrian Orr has warned the country that it is likely to head into a recession in 2023. Photo / Getty Images
Q: What about if you were a first home buyer?
Obviously, a first home buyer doesn't have anything to sell. At the moment there are trade-offs because the market is probably only halfway through the downturn. I can see both sides of the equation. If you're a first home buyer, you're going to live in the house for a while, you want the security, you like the house, saving another five per cent or 10% on the purchase price is probably not either here nor there. There are some first time buyers who will definitely be wanting to wait and say ‘yep, I'll save another five per cent or 10% and I'm prepared to pay a higher mortgage rate, that's the trade-off for me’. But also some people just want to buy, because they want a house and on the ground it might already be down 20%. I'd probably still just buy, if I was a first time buyer and I saw a house I liked. I mean, how many open homes do you want to go to? For me whether you’re an investor or a first home buyer or a mover or a new migrant, whatever you are if you're planning to hold for the long run then it probably doesn't matter.
Michael Gordon, acting chief economist at Westpac
Q: Would you buy or sell?
Asking advice gets into tricky territory I'm afraid. As far as it goes the Reserve Bank’s announcement was not a long way from what the market was already expecting. We're still expecting further falls in house prices. We’re forecasting a total drop of 20% from the peak which was late last year. We're probably a bit more than halfway through that now but the impact of higher mortgage rates - there's still a way to go to close the gap between what people would be willing to pay today versus what the sellers are still hoping to get.
CoreLogic chief economist Kelvin Davidson: “There are some first time buyers who will definitely be wanting to wait.” Photo / Peter Meecham
Mike Jones, chief economist for the BNZ
Q: Would you buy or sell?
There are so many factors to weigh up, most of which are unique to the individual. We do think the near-term outlook for house prices has probably darkened a little following the Reserve Bank’s update. Some of the near-term data was showing signs of the down trend deepening in any case and I think we'll probably just see a bit more buyer restraint into the market following the signal from the Reserve Bank that interest rates are going to rise even further - I'd expect the housing market to finish the year with more of a whimper than a bang.
Q: What impact will going out with a whimper have on people's decision making?
I think next year is looking like a difficult one both for the housing market and the broader economy and I think we're seeing cost of living hikes continue to come through alongside a delayed impact of some of the mortgage tightening we've already seen so it's probably the time to look a bit more closely at a budget and stress test it and allow a bit more room in terms of budgeting. It's certainly much more of a buyers’ market than it has been, so less competition and time a bit more on your side given we are seeing houses take longer to sell, there's more of them on the market. But there is still more to come. I think from that residential construction boom we've seen over the past five years that's going to start filtering through to more supply next year as well so there’s going to be more choice from a buyer's perspective.
