Economic State of Play

Posted on Wednesday, August 17 2011

I think the current market is an exciting one for street smart investors. However, a number of enthusiastic lemmings will unwittingly jump off the cliff.

It’s why so many people seem to be prepared to pay good money to attend get rich quick seminars. If only it were that easy!

There are undoubtedly some great buys in this market (and some not so good buys.) An area that I think a lot of people will become unstuck is the renovate and quick flick.

If you don’t know your market it is very easy to get stuck with a property and I’ve noticed a few investors getting caught out of late.

If you buy a do-up you need to understand exactly who your buyer is. No point buying on the south side of Mangere Bridge and trying to sell it to a First Home Buyer. North side yes. South side not good. Know your market and know your numbers.

The current market is dominated by First Home Buyers. They are fueling the mini property wave that is rolling through Auckland city suburbs.

However, they can be a panicky lot. Winter 2011 feels a lot like Spring 2009 when FHBers had a rush of blood to the head. Then, like now, there was good news in the market and economists were taling prices up. NZIER was talking 15% in 3 years. Irronically they seem to be saying the same thing again!

FHBers tend to surge in and out of the market based on confidence. The early part of 2011 was dead, so when they surged back in there was a bit of a backlog to clear. Just like in 2009 it doesn’t necessarily have that much depth. Come Spring with more listings, a world cup and then an election and the market could easily run out of puff, so it pays to stay wary.

In terms of mortgage rates, it is inevitable that rates will go up 0.50% before the end of the year. From there-on-in however they’ll hardly change and we can expect to see rates between 6% and 7% for the foreseeable future.

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