Mainly it is because we consider more wealth to be better than less. If house prices are rising, we feel richer, potentially more clever and pleased with ourselves, happier about our ability to fund our retirement by downsizing if necessary, and perhaps we like a reason to justify spending up large on a holiday or new furniture.
But for those of us who made our first purchase before governments told us we needed to build wealth for retirement because national superannuation might not be affordable one day, lifetime wealth accumulation was not really the motivation. Our focus was on securing a home in which to raise a family. We wanted something not too far from our workplace, perhaps with some outside space for playing, gardening, and hanging the washing.
When we talked about getting a foot on the property ladder it was in the context of starting small, then later upgrading to account for more children and a higher income further up the work ladder. These days it seems more to refer to outright building of a financial wealth portfolio and avoiding missing out on wealth accumulation being enjoyed by others.
This is a problem for current first home buyers right this moment because of the stage which our housing cycle has just reached. Currently there is a dominant focus on how much further prices have to fall after already declining 10.4% from their nationwide peak last November. Auckland prices are down 16%. The common expectation is that prices will decline maybe another 5%. After that it seems the prevalent view is things will sit flat for an extended period of time. Actually, I expect rises of 5% - 10% in 2023.
If you are a first home buyer and your focus is on wealth growth, then you think you are incentivised to hold off until prices have bottomed. This is a dangerous strategy easily challenged in two ways.
First, as a newbie in the investment field you won’t yet have learnt a key lesson the experienced investors have. Don’t try to pick the tops and the bottoms. You’ll feel far worse waiting too long and missing either than taking advantage of the large number of people on the other side of the transaction giving you the ability to pick and choose.
That is, you sell when markets are exceptionally frothy and there is no trouble finding a buyer who sets no conditions for the lesser quality asset you might want to sell. You buy when there are a high number of sellers, you can use each as a bargaining chip against the others, and you can pick and choose the best quality assets with greatest long-term or yield growth potential.
My monthly survey of real estate agents undertaken alongside REINZ has just shown that 45% of investors looking to make a purchase are motivated by hopes of finding a bargain, up from 30% in February. The smallest net proportion of agents are seeing investors standing back from the market since September last year.
Second, if your focus is where it should be on securing a home rather than the first housing asset for your portfolio, then where the market sits right now, potentially even this month, is as good as it is going to get for a very long time.
You can pick up a property for as much as 15% - 20% less in Auckland than you would have paid late last year. In Auckland you have 80% more houses to choose from than a year ago, outside of Auckland almost 130% more. Vendors have likely reached their point of capitulation to market reality, with a recent ASB survey showing a net 31% of people expect prices to fall further (28% in Auckland). This survey is not a good predictor of what will happen, but it does in this instance allow us to say vendors have almost certainly lost faith in any belief that waiting will yield a better price.
Should you try and be clever and hold out for the final 5% of price declines? Consider this. Have you ever heard your parents or grandparents bemoan the fact they bought their first house for $65,000 but had they waited three months could have got it for $61,750?
So, are first home buyers in fact starting to focus on the new opportunity to secure a home? Maybe. My latest survey of real estate agents shows that for the first time since September last year more agents are seeing increased numbers of first home buyers than decreased numbers. Last month a net 36% were seeing fewer. Things may be changing very quickly amongst first home buyers and if you have a misplaced focus on getting your first housing asset at the bottom of the price cycle rather than your first owned home, then the clock is ticking against you.
My survey with REINZ shows that worries about high interest rates, access to finance, and even falling prices, are all abating. It also shows numbers attending open homes rising for the first time since February 2021. The housing cycle has now entered the preparatory phase for turning back upward.