ANALYSIS: Last month, I gave you six reasons why I’m looking to buy in the current housing market. When I get it, it’ll be my first one to live in, after investing in rental properties for the last five years.
But before anyone goes off and spends hundreds of thousands of dollars on a house on the basis of my article, it would pay to look at both sides of the equation. So, here then are six reasons not to buy a house right now.
1. It’s not clear that property prices are actually rising
Property prices rose 0.5% in October following a 1% increase in September. But property prices usually go up in spring and a 0.5% increase in October is below the typical price bump the month enjoys, so there’s no slam-dunk trend that would lead you to conclude property prices will definitely continue to rise.
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Yes, many banks are forecasting house price growth in 2025, but forecasters are often wrong. Property prices could go up. But they could also fall or go sideways.
2. Interest rates are still high
Interest rates have fallen from where they were at the start of the year, but they are still high, restricting the amount borrowers can spend.
Infometrics data shows that this combination of high interest rates and high house prices means that the mortgage on an average priced-house could take up almost 50% of the average household’s income.
When it comes to property investors, many rental properties require a top-up. In other words, the rent doesn’t cover all the costs. That shortfall comes from the investor’s pocket.
3. House prices are still high compared to incomes
Right now, the average house price is seven times the average income.
With house prices this high and affordability this stretched, it’s easy to ask yourself: “How much more can house prices really go up?”
4. The rental market is tough
A net 21% of property investors say it is hard to find good tenants. That’s according to Tony Alexander’s survey of property investors with Crockers.
Properties (especially in Auckland) are taking a few weeks longer to rent. This can make first-time property investors nervous. Few can afford to pay both their own mortgage and an investment mortgage. Any uncertainty about finding a tenant will naturally make buyers cautious.
5. Trump won the US election
Donald Trump’s return to the White House in January will add to uncertainty in the wider global economy. If he introduces tariffs, as promised, how will they impact New Zealand? Will they be inflationary, as many economists have warned, and if there’s more inflation, will interest rates go back up, or at least stay where they currently are?
Opes Partners economist Ed McKnight: "You weigh up the good and the bad and then decide what’s right for you." Photo / Fiona Goodall
Nobody really knows, but taking out a big mortgage to buy a house requires certainty, as borrowers need to be confident they can afford to repay their debt.
Whether you love or loathe Trump, we can all agree that we don’t always know what he will do and what the impact of that will be.
6. Some developers are going bust
The New Zealand Herald recently reported that Classic Builders has cut 90 staff. The IRD is applying to liquidate Citadel Capital and building consents by Stonewood Homes are down 90% since their peak 10 years ago.
So, there is a real risk that buyers right now could sign up to buy a property that doesn’t get built. If that happens, you should get your deposit back, but it means you lose time.
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All of the above will be taking its toll on property buyers. Most of us know that property prices tend to go up over the long-term, but right now, it’s tough and that can have an emotional impact.
And if this scares you stiff, good, that’s the point. This article and my previous one should give you pause for thought and help you form your own balanced view.
For me, I’ve decided it’s the right time to spend a lot of money on a property, even though not all data points scream “buy now”. You weigh up the good and the bad and then decide what’s right for you.
- Ed McKnight is the economist at property investment company Opes Partners
