Olly Newland’s Column, 19 April 2009
Like a hungry man falling on a morsel of food, some commentators and interest groups are in full cry over the (very slight) improvement in the property market. Houses are selling again, albeit at lower figures, and the mood is far more up-beat now than it was a few months ago. The main driver of this resurgence is, of course, lower interest rates.
Any market improvement is good, but I fear this may be a false dawn. Buyers might be rushing in too early. In their enthusiasm to re-live the ‘good old days’ they may be falling into a bigger trap than before.
There are two reasons why it would pay for buyers to be wary:
(1) Lower interest rates bring out not only buyers but sellers as well. Sellers, who have been hanging on by their fingertips up until now, are well aware the market has picked up — and so are listing their properties at a fast clip. This could well swamp the relatively few buyers out there and cause another dip in house prices. Indeed, the statistics reveal that most sellers are taking a loss if they bought within the last 2-3 years.
(2) People have short memories. Only a year ago interest rates were on the rise and picked to go higher. Home owners and investors were crumbling under the weight of double-digit rates. Then along came the the ‘Great Recession’ and now interest rates are heading towards zero.
Question: Will this last?
Answer: No.
Read a shorter version of the ‘Beware of false dawns’ column as it appeared (with questions) in the NZ_Herald Sunday 19 April 2009
