The property clock is a way of representing the property cycle, which is a simplified model of house value trends over time. It’s a helpful reminder that slumps aren’t permanent and booms eventually turn to slides.
Knowing where the current market is on the clock can be helpful if you’re aiming to predict whether values will go up or down – but it’s far from an exact science.
Where are we now?
The feeling among property commentators is that, in mid-2017, we’re at the top of the clock. Infometrics calculates its own property cycle indicator, and chief forecaster Gareth Kiernan says he thinks it’s about half past 12.
There are a few outliers: Christchurch is a “very special case” due to the post-quake rebuild and it’s probable Auckland will see more growth due to the “massive” ongoing housing undersupply. However, he adds that New Zealand’s property market does tend to follow roughly the same cycle – the whole country “goes more or less together.”
If it feels as though your area is still running hot, it may well be, partly because there are “mini-cycles within the broader cycle”, says Kiernan, that can make it seem as though the clock is running in reverse, or jumping ahead. This is particularly true in smaller markets, which tend to be more volatile.
So what are the indications that New Zealand has passed 12 o’clock?
Prices have flattened, sales volumes are down, yields are poor, interest rates look set to rise. Kiernan also thinks we may have reached a limit of what people can afford to pay in Auckland: with incomes seeing only modest growth, homebuyers there may be stretched to their maximum until incomes increase.
Pulling together a 20% deposit and servicing a sizeable loan are hard enough on an average income and it’s not going to get any easier if interest rates go up. While it’s likely most people around the country can cope with a 1.5% to 2% increase in interest payments, Kiernan is worried that some Auckland homeowners may be taking on too much debt.
“That’s the biggest concern for me – have you got a bit of a buffer? When people are taking on more debt and if rates have pushed up, that would help to reinforce a slowdown.”
Timing the market
Ideally, you would always buy at six o’clock and sell at 12, but any experienced investor will tell you it’s very hard to time the market:
“The property clock is okay to have as a frame of reference,” says Kiernan, “because it helps in terms of being clear where the market’s likely to go. But it’s not always clear where you are, and no two cycles are the same. Buying and selling at the right minute is a hard ask.”
It’s good to remember that if you’re buying property for the long term, timing isn’t the most important factor. Clocks aside, over the decades property has historically increased in value. If you’ve sold your house and you’re waiting for the bottom before buying again, provided you can comfortably service the debt and you’re not forced to sell, your house can drop in value without causing you any real problems. The same goes for long-term buy-and-hold investment properties.
While banks do factor in a cushion for interest rate rises, you should always do your own sums, too. Make sure you can service your debt even at 8% interest, avoid putting yourself under too much mortgage stress, and take the long-term approach – there’s no need to spend your time looking at your watch.