Where's The Market Headed?

Bring up the word property in any conversation and you’ll always get peoples’ ears pricking up!

What’s on most people’s minds and mouths is what’s happening in the market and where are we headed?  After all, most people’s wealth is tied up in property.

Almost on cue, a new guru (or old one) is wheeled out to talk the market up or down.  We’re either in a boom or a bust.  Why?  Because papers need to sell and who wants to read about a steady market?

Harry Dent is the latest guru who accurately predicted the GFC.  So he has some credibility right?  Well if you call a bust each year, eventually you will call it right, correct?

So he’s wheeling himself out again and calling for it to happen, with Australia (and New Zealand with such close ties and similarities) as the leading region to be affected.

Without a doubt the heat has come out of the market and in some spots there is cooling.  And that’s a good thing.  But there certainly isn’t a crash and as long as the fundamentals of under-supply and increasing population continues, there cannot be a sustained crash.

He makes a good point about quantitative easing which relates to central banks printing money to keep interest rates low and money in the system.  The extent that which they do this is of some concern.  But in the event of a crash, do you genuinely think that they would turn off this mechanism, sending further turmoil into the markets?  Personally, I don’t think so.

We are in a soft period of the property cycle and I believe in respect of the Auckland market we’re between what’s typically known as the slow down and slump.  Every asset class largely has a life cycle, and we are in the phase where prices will be subdued for the next 12-24 months. Although in my opinion, the market is still technically strong for where we are in the cycle.

The main drivers for this I see is the banks being rightly (in my view) cautious and ensuring that they are sufficiently capitalised to cope with any global shocks.  Much to the frustration of some developers, this shows prudence and good management.  Only the good projects get support and is good for long-term stability of the market.

When lending is tight, it’s harder to buy and invest in property. Once this becomes more relaxed, you will see the property market start to rise again.

We see the next 12-24 months as the best time to be acquiring opportunities when others aren’t so active in the market.

Don’t be the guy or girl at the party in ten years’ time telling all your friends that if only you had got into the market 10 years ago you’d be laughing.  And if you are, don’t say I didn’t tell you so.

Graeme Fan