Getting Ready For A Post-COVID Market
The most important factor in preparing for a world post-COVID-19 is income and job security.
Obtaining a clear understanding on security and understanding potential reduced income from your employer is key. Understand your income levels going forward and ensure that you are confident about your ability to take on any debt that you are proposing to take on is very important, and it’s what this three-part miniseries covers.
I recently released a post on utilising loan and mortgage calculators to start planning this. The COVID-19 lockdown is a great opportunity to review your budgets and make sure that the proposed repayments, based on your income, will be affordable. These calculators can help.
If you fall into the bracket of a first home buyer, it is a good time to look at your KiwiSaver. Has that balance reduced? Is it below what you intended on having when you were considering applying for a loan?
That reduced balance may not be an issue in obtaining a home loan, but it may be that if your deposit has reduced then the price you can pay for a house may need to reduce.
Therefore, you can still possibly get a home loan but just not quite at the level as originally planned.
Opinions on what the local real estate market might look like in a post-COVID-19 world are wide and varied. In my view, Christchurch has been arguably undervalued for the last couple of years, compared to main centers like Dunedin who has had a higher average sale price for a few months now.
The argument might be that we are now better placed than other regions, such as Auckland, Queenstown, Wanaka, Rotorua, or Wellington. Christchurch has been less reliant on the tourist industry than these areas. House prices in Christchurch still provide great value for money comparably. A lack of stock on the market, as we entered COVID-19, may also insulate Christchurch from a larger drop in values than these other areas of New Zealand.
Are you looking to get into real estate in 2020?
Buy real estate and wait, don’t wait to buy real estate.
Long term trends tell us that property will increase in value over time, and for those that are looking to buy and willing to hold, this is key to remember.
If we use the global financial crisis as a reference point, we had about an 8 per cent drop in property values back in 2008 – 2009, and then over time, values have increased exponentially allowing those that waited it out a positive capital gain.
Over the last 70-years, property values across New Zealand have steadily increased and have generally doubled every 12 to 13 years. There will be dips in those trend lines (such as what we saw after the GFC (global financial crisis), or perhaps now due to COVID-19) but it is always likely to trend upwards in time.
If you are looking to sell and plan to buy in the post COVID-19 market, as long as you are buying and selling in that same market, you should have few concerns as to what values do (for example, decreasing or increasing in value).
Any change in value in your own property should be mirrored in the new one you buy.
Is there going to be reductions in values?
When we look at Christchurch as a region at the beginning of 2020, there was very much a lack of stock on the market. And so, we had plenty of people with pre-approvals who could not find a house to purchase.
This created a large supply and demand challenge. Assuming we still see low stock levels (influenced by those needing to sell and more houses up for sale) there will be plenty of prospective buyers who can still purchase or still want to purchase, competing heavily with others to buy. That may then insulate against any large price reductions as well.
However, if there are more sellers than buyers, then we may see some larger price reductions. If people coming to the market are desperate to sell because of lost or only recently purchased, these sellers will be highly motivated for a quick sale.
This provides an opportunity to get your first or next home at a potentially lower price than you might have expected to pay.
Sellers may need to take a hit on the asking price post-COVID-19.
Time will tell at what level this will happen, but there could be good opportunities for buyers. For example, buying from the likes of building firms needing cash flow after, recent, large developments?
There could also be opportunities in the investment property market. Places like Queenstown, Wanaka and the Auckland CBD could provide opportunities for investors to buy with a view of that long-term hold. Investors with a shrewd eye could come out of this and obtain some excellent long-term capital gain just as we saw in the years following the Global Financial Crisis.
Keep a good eye on the landscape. There will be far less Airbnb’s in the rental market as a result of a dried-up tourism sector. Those properties may be highly mortgaged, and the owners may need to sell those down. Again, those key areas such as Queenstown, Wanaka and the Auckland CBD are prime spots where an oversupply and opportunity to hold up long term could be a very reasonable strategy.
At present, we currently have the lowest interest rates in about 70-years, and these are likely to remain low for a long time. We do not expect to see any changes upward for at least the next year and possibly longer.
There are both negatives and positives around what the post-COVID-19 could look like. There will be many who suffer loss income challenges and that is an unfortunate fallout from COVID-19. For those unaffected there will be opportunities. But just bear in mind there are some considerations, particularly around income and your ability to meet your obligations going forward that are key.
In the second part of this mini-series, I touch on the banks’ lending criteria and what loan applications may look like going forward.