Should you stuff money under the mattress or buy property?

2/10/2020

The old adage of stuffing your money under the mattress may sound far-fetched but that’s what we think Kiwis are starting to do with these low deposit rates. Some are even considering stuffing gold bars under there along with it. By the way, neither are very easy to sleep on! The vast majority of Kiwis are now starting to invest again into the property market. 

What an exciting few months the NZ property market is having! You will be reading in the media right now the market is on the up.

New Zealand’s online realtor, proppy.co.nz has just posted its second straight record month since 2015 and seems like there is no slowing. Traditional agencies are also reporting the same which is encouraging. The question that everyone asks us - can the property bull market continue? Our answer is yes. Why?

It is largely driven by several things, but the number one thing people are saying to us right now is that ‘money is cheap’. In other words, ‘interest rates are low’. People aren’t really wanting to put money in the bank and receive 1.15% on a term deposit. It’s frankly lousy but it’s the reality and we think it’s going to get worse for kiwis parking money (cash) in the bank. The mortgage rates are sitting around mid to late 2% per annum and we think these will fall a little further as the reserve bank looks set to reduce the official cash rate lower. So, the yield search is on!

FOMO (Fear of Missing Out) has a lot to do with the property market right now too. People are scrambling to get finances together & the banks are telling us they are receiving record applications for lending. Queues at open homes are another important indicator as they snake down the streets.

So, the question then is… would you do it? Would you go and buy a first home, a secondary property, or a property investment? Can the market sustain higher sales prices and record number of property sales? Can this all continue? All great questions… we think the answer is yes.

There are way too many arguments to see this not continuing – looking at job loss data. The losses seem to be in the younger age bracket and this group aren’t really in the property market anyway. The fortunate people that have work are in the market in a big way.

We have friends from Auckland staying with our family right now in Central Otago. They are saying why not buy a holiday home down here? Use it in the winter (go skiing) and in the summer (go boating) - that’s the new normal. They aren’t keen to get on a flight anytime soon, and their normal annual family holiday of two parents and three kids going to Fiji or Noosa which costs them anywhere between $10k-$15k a year is now off. But guess what they are doing instead - getting a 2.49% loan and buying a bach or renovating. The cost of servicing a loan like isn’t too much different to the cost of a family holiday and guess what, they will have an asset in the future. This is happening throughout NZ.

Last week we had several properties where multi offers have occurred – Rotorua, Hamilton, Tauranga, Christchurch. All these areas are very buoyant, and people are pulling money from under the mattress and parking in the property market. Holiday homes are now enticing property investors.

Migration into NZ is continuing at levels not seen for years and many are first home buyers in New Zealand. But they are not only just looking for the entry level properties, but quality homes. The lack of supply is driving those prices up too.

The COVID-19 experience has enabled staff to ‘work from home’ and businesses are open to this now. This new idea of working from home is driving people into sunny cities like Tauranga, Napier & Nelson where the lifestyle is – yes you can have it all! Priorities are changing and the old key concerns of living near the motorway on and off ramps so you can easily get to work is not a “must have” now compared to the home office. Now the primary bread winner can work from home and in a good suburb with everything handy.

Living in Wanaka and Queenstown is also attractive as working remotely with pristine views and lifestyle is becoming a major drawcard for expats and families that have been living abroad and consequently, they are still pushing prices up.      

So when will end? Unless NZ has a sharp economic jolt, which will be driven by outside forces largely out of our little Government’s control (arguably this will happen somewhere down the line?). The answer is yes it will continue in the short to medium term.

So, in summation, stuffing your cash under the mattress may look enticing right now for some. But the answer is… locking in longer, fixed mortgage rates at these historic low interest rates might give you real certainty to these uncertain times. You will also have a higher yielding asset for your family and your future! 😊

Cheers,

Tyson and Hannah