The Disturbing Truth About House Price Inflation
If you are stuck trying to get further on the property ladder you will have noticed this is a tough time.
The concept of House Price Inflation may be foreign to many people but it is very important for you to understand its meaning.
House Price Inflation is the term referring to the increase in house prices. This occurs when:
- Supply decreases - fewer people selling their properties
- Demand does not decrease but remains steady
- The economy is struggling and money is pumped into the economy by governments in an effort to dampen or soften the economic blow while simultaneously lowering interest rates of borrowed capital.
This creates a situation where very keen property buyers desperate not to miss out rush into the marketplace and perpetuate the cycle. The result is the purchaser pays top dollar hoping that the property values will continue to sky rocket. That is not the right way to buy property as many risk getting stuck and caught out by House Price Inflation.
Here is a definition of inflation:
"The rate at which the average price level of a basket of selected goods and services in an economy increases over some period of time… Often expressed as a percentage, inflation thus indicates a decrease in the purchasing power of a nation’s currency."
So what's happening is due to a simple term called inflation. This round of inflation is caused by a weakened NZD in the world markets, the effect of which is being fought with cheap money on the local markets and both are being exasperated by a significant decrease in supply of property for sale mainly due to uncertainty on the part of sellers.
No one knows what is actually happening in the New Zealand economy in general so this causes inexperienced buyers to run out and drastically over pay for property, again in an effort not to miss out.
As mentioned earlier, if you are just trying to get on the property ladder you will have noticed this is a tough time. However we at House Flipping NZ want you to understand that it's not because the value of property has gone up; it's no more valuable than it was yesterday or two years ago.
So what do you do about it? Get in touch with us and let's talk. We have strategies in place that beat this losing battle and put you onto the wining team. One strategy you can use is learning how to identify an off market property so that you are not compelled to compete with or be forced to over pay along side 7 to 10 other bids or offers.
Case in point we recently ran a test on a listed property that went to multiple offer. Our detailed study of the market and the state and condition of the property indicated a purchase price of $700,000; the winning offer put in $800,000 for a property that needs a significant amount of property with no prospects of future capital gain.
Authored by Tom Faye who founded House Flipping NZ, a property investment and education business based in Auckland, New Zealand. The business provides solutions to the marketplace such as educating investors on how to find their own properties and then buy, renovate, and revalue off market properties; giving sellers the benefit of quick sales cycles without the hassle of expensive and sometimes excessive marketing campaigns.