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Turning of the housing cycle

Turning of the housing cycle

From Tony Alexander

The negatives for housing have been dominant over the past year and a half with regard to interest rates rising, net migration flows turning negative, new house supply rising firmly, credit access tightening, and tax changes dissuading investors. Initially these factors were swamped by a shortage of listings from mid-2021. But since December their clear dominance has seen average prices fall by around 11% and sales fall over 30%.

For the moment the negatives will remain dominant. But key elements in the housing market are changing and we are solidly into the endgame for this period of weakness. Specifically, with the ASB Housing Intentions Survey recently showing a net 31% of people expecting prices to fall, we can reasonably assume that vendors are now capitulating to the weaker market.

More willingness to negotiate means the market is going to start clearing and buyers are also stepping forward to some degree. In my two most recent monthly surveys of mortgage advisers and my latest monthly survey of real estate agents we have seen more respondents saying first home buyers are stepping forward than stepping back.

It appears that with the assistance of a light easing in lending conditions, changes to caps for gaining a grant from the government’s Homes and Communities department, first home buyers are increasingly throwing away the idea of trying to buy at the bottom. They are taking advantage of the doubling of listings from a year ago and securing their foot on the ladder for raising a family.

Many others however are not, yet they also talk in terms of picking the bottom of the cycle. This is important. It tells us that the majority of people do not believe house prices will keep falling. They anticipate a turning. We cannot know when this occurs – though my best guess is around New Year – but the key thing is that there remains a strong desire to buy.

The low likelihood that interest rates will fall much in the coming year, net migration losses through 2023, and weak economic growth immediately in prospect, mean that while I expect average house prices to rise next year, the gains will be fairly minor. The more important point to note is that the clock is ticking for this interesting period when stocks are plentiful. Come acceptance of the cycle having turned and that situation may rapidly alter.

For additional information on the economy, housing market, and interest rates, you can subscribe to Tony’s free weekly Tony’s View publication at

From Us – Uncertainty is Certain

Tony has pretty much summed up investing above.  However, first home buyers should remove themselves from seeing their purchase as an investment.  We’ve discusses this before here Time In Vs Timing The Market And Recent Changes For First Home Buyers…Good Ones! | Isbister Partners

If you want certainty when you invest, a term deposit or a savings account are probably the best options.  Your money is held by conservative banks within a highly regulated environment.  You give them your money and they pay you a set rate of return for the time you have agreed to.  At the end of that time, you should get your money back.  I say should, because even banks have failed in the past.  You also receive your reward (interest paid) for keeping your money invested with them.

As advisers, after profiling a client we will advise them to put their funds into a term deposit if they don’t want to take any risk.  After we despatch that advice, we have had client’s say “but I don’t want the measly return the bank is offering.  After tax and inflation, I pretty much get nothing” They would be correct.  However, that is the reward for taking little risk.

To achieve higher returns, investors need to be willing to accept:

  • Greater volatility, movement of their investments up and down
  • Potential for loss.  Loss can be diversified (spread across a vast number of assets) away within a portfolio.  However, if you sell at the wrong time, you can experience loss.  Which leads to the next point,
  • Investing needs to be over longer timeframes.  History tells us asset values move up and down, but over the long term they move up.
  • The media will do a great job of trying to undermine your confidence in investing.  Bad news sells.  Don’t let it distract you from your goals
  • Investment fads come and go just like in fashion.  There is nothing sexy about investing.  Don’t be distracted by your uncle/friends/colleague/taxi driver telling you about the latest hot thing they have just made 50% on in the last 12 months.  It won’t last, nothing ever does.  Which is a nice segway into the next point
  • The good times won’t last.  The bad times won’t last.  Human beings tend to think things will keep going as they are.  It’s called recency bias.

Investing, to outpace inflation, involves uncertainty.  That is what you are rewarded for over the longer term.  Generally, the higher the expected return, the higher the risk.  Including term deposit like products that are mortgage backed.

Disclaimer:  This newsletter is meant to be informative and engaging, hopefully not a cure for insomnia.  Please don’t take this as personalised financial advice.  Discuss your situation with an Advisor.  This is where I need to say past returns are no guarantee of future returns.


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