The Dunning–Kruger effect is a cognitive bias in which people with limited competence in a particular domain overestimate their abilities (Wikipedia).
During the last 12 months, real estate agents in Jersey have finally learned about the inverse relationship between interest rates and asset prices, including residential real estate prices. And now every second real estate agent speaks about the “base rate”. Well done, but that’s just the start of your learning journey.
The interest rates banks offer is not only a function of that now famous “base rate”. Factors such as the borrowers’ credit risk, overall level of risk aversion in the market, bank’s interest margin considerations and of course the competition play an important role in the final mortgage pricing.
You will be surprised to learn, that these factors are all playing against the residential market now: interest margins of large lenders are lower than during the CV-19 times, as people actively move their money to interest-paying products, the overall risk aversion in the real estate market is high due to the demonstrated volatility in the market and uncertainty in the valuations, credit risk is increasing as a result of relatively lowered job security and higher portion of monthly outgoings in the salaries. Salary increases have moderated and are unlikely to jump this year.
You will be also surprised to know, that you and your colleagues globally have played a major role in breaking the market. Agents employing unfair and in many cases deceptive techniques, fabricating “valuations” against all the rules and techniques of the profession, and pushing junk assets with unfair prices have contributed to the price volatility significantly. And volatility equals risk.
Jersey mortgage borrowers are dominated by accountants, lawyers and administrators. Do you know what unites them all? CAUTION. Yes, they may sometimes (or most of the time) submit to the herd instinct, but they don’t forget the adverse events. They won’t forget the face of their colleagues, who are in negative equity, they won’t forget the change in tone in a matter of months. They have learnt the lesson.
So should you. Any reasonable agent should now play with the trend. Stubbornness will mean an even lower price later. The interest rates may have peaked at nearly 7%, but believe me, they are not going to be anywhere near what they were in 2020 or before. You should learn this lesson, but if you are not willing to, you’d better go learn coding at Digital Jersey or train as a fireman. You won’t be having a queue of deceived buyers desperate to step on the property bubble any time soon.
