As we draw curtains on the year of 2022 it’s nice to reflect on the good, the bad, the personal development, the achievements, the new beginnings. 2022 for me represented arguably the busiest, most amazing year of my life. Marrying my beautiful wife Anna in February, to adopting our first puppy together and entering the world of major responsibility to travelling the world for two months. We put our marriage to the ultimate test almost immediately and crushed it (although I can’t say it was all sunshine and lollipops). This past year I saw major personal development in my own self. Learning new techniques to manage my every day stresses and anxieties, to looking further inside myself than I ever had before to discover new skills, desires and ultimately improve as a human being. So here’s to 2023, let’s all hope for a year of positive prosperity!
In this weeks blog I aim to tackle a topic that seems to have been on a lot of peoples lips in 2022, Inflation. This past year this word has been constantly associated with a negative tone. Due to our high percentage of inflation I can understand why, however inflation is not always a negative, and is crucial to a healthy economy – let’s take a look at inflation, what it means and how it affects the housing market.
As a real estate agent, it’s important for me to stay informed about economic trends and how they might impact the housing market. Inflation is defined as a sustained increase in the general price level of goods and services in an economy over a period of time.
Inflation can have a number of effects on the housing market, and it’s important for you, whether a buyer or a seller to understand how it could impact your decisions and goals. Because, inflation is a constant in any economy it’s also important to try and wrap your head around the effects – positive and negative that can transpire from increased inflation in general.
One of the most obvious ways that inflation can affect the housing market is by increasing the cost of house prices. When prices for goods and services in the economy rise, it’s likely that the cost of housing will also increase. Take our rapid ascent after COVID hit us and the housing market took off like a rocket as an example. Property wasn’t the only commodity to hit the boost button during this period, share prices and other general goods and services also saw liftoff.
Money introduced into a countries economy like we saw during COVID times increases spending and therefore drives prices as demand heightens and supply shortens. In regards to the housing market this meant we saw house prices rising faster and faster due to less supply and a lot more competition. Naturally this increases inflation and the country saw a rise in inflation annually to over 7%. For reference most countries target an annual inflation rate of 2%. With inflation rising at an unsustainable rate it can make it more difficult for buyers to afford homes, as prices may rise faster than their income.
Another way that inflation can impact the housing market is through mortgage interest rates. When inflation is high, lenders may charge higher interest rates on mortgages to compensate for the increased risk of lending money and due to the reserve bank increasing the OCR (Official Cash Rate) to combat the rapid rise in inflation. This can make it more expensive for buyers to borrow money to purchase a home, which can impact their purchasing power.
It’s worth noting that the relationship between inflation and the housing market is complex and not always straightforward. For example, in some cases, higher inflation can actually lead to lower mortgage rates, as lenders may be willing to accept lower returns on their loans in order to stimulate economic activity.
Unfortunately some countries in the past haven’t been able to curb inflation and have ended up in a zone of ‘hyperinflation’- which is a rapid and out-of-control increase in the price of goods and services in an economy. It is typically defined as a situation where the rate of inflation is greater than 50% per month. This is however, extremely unlikely for us in New Zealand.
As I mentioned earlier, Inflation plays an important part in any economy and as long as it’s operating at a healthy sustainable level it helps to build and strengthen an economy. Ultimately a high inflation rate means a decline in the value of that nations currency and sometimes slightly higher inflation is a bi-product of an event on such scale as COVID.
If you would like to reach out and discuss any of this with me my email address in nick.drysdale@tallpoppy.co.nz. Otherwise as always thank you for reading, see you next week!