Beating the LVR's return and FOMO are driving Kiwis into frenzy
Independent economist Tony Alexander expects Kiwis to sell their worst properties as house prices continue to soar in 2021.
Tony Alexander said the loan-to-value ratio’s (LVR) return this year, fear of missing out (FOMO), and higher minimum deposits are currently driving property investors into a frenzy.
“After the next two months, when I think there is still some frenzy left in it, we are going to see a slowdown in the rate of price gain,” Alexander told The AM Show.
He expects house prices to continue rising, but the LVR’s reinstatement is likely to impact the market. Therefore, investors will most likely sell their worst properties while the market is still red hot.
“It’s not going to continue like this. There will be a slowdown. Some of it is going to be natural in that the deposit that you have got to come up with is going to be too big. And some of the investors who have been around for a number of years, generations, they know what to do when the frenzy comes along – you sell off your crap, the stuff that needs a new roof, or the new floorboards, you start flogging that off,” he continued.
Alexander added that it’s “pretty rare” for prices to fall as it only happens when the country is in recession, which doesn’t seem possible in the near future.
“And then for prices to really slow down, to get close to a 0% change, you need interest rates to go up,” he continued.
“When prices fall, all of the first home buyers – who we are concerned about at the moment – they are going to go ‘I’m not going to buy because the prices are going to fall’. It’s the best opportunity for them to buy, but they pull back and wait until everyone else dives in,” Alexander concluded.
