Supply and demand, demand and supply, they're the two scales that balance nearly every market. From gemstones to cars, food to furniture, the more people want something and the less of it there is, the greater price they will pay. As an investor, you've probably wished for a crystal ball to help to predict when to invest in residential property; when supply will be low and demand will be high.
Unfortunately, magic is out of our purview, but we can tell you about two basic things that will affect property supply and demand and thus your investing success.
Residential building approvals
Residential building approvals are generally considered to be "a leading indicator of property investment", according to Harry Karamujic of the University of Melbourne. This is because, while approvals don't necessarily mean commencements, they have been found to be correlated.
For a real example, we look to late last year. According to Statistics New Zealand, November 2015 had a huge number of dwelling consents. Almost 3,000 residential buildings were approved, with 966 in the Auckland region alone. With so many new buildings cropping up, we could be seeing the start of supply outweighing demand.
This mightmean that housing prices will drop if demand does not increase with it, resulting in more accessibility for first home buyers and new investors.
Interest fees and rates (including the OCR)
The fact that there are more buyers with more capital means there is more competition for the smaller number of properties.
Many people have to take out a mortgage when purchasing a house. When interest rates are low (i.e. people are paying less over the long term), mortgages become more accessible to more people, resulting in more lending and more spending on houses.
This affects the housing market by increasing demand. The fact that there are more buyers with more capital means there is more competition for the smaller number of properties. More demand, same supply, prices go up. It's good for current investors as it makes your asset value go up.
A recent example of this is the change of the official cash rate (OCR). The OCR is a tool used by the Reserve Bank of New Zealand to control multiple economic factors, and it can influence interest rates from lenders. On 10 December 2015, we saw the OCR cut to 2.5 per cent. This resulted in banks dropping their interest rates for customers, making loans more attractive to buyers.
This is a good start, but to take full control of the creation of your wealth, speak to the experts at Goodlife Financial Advice.
Here's to your financial independence!
Authorised Financial Adviser / Investment Property Expert
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