Selling In A Downturn: Part I

By Craig Lowe


Since my article in the last issue about Wellington’s changing housing market it has become clear that this issue is not about to go away. It seems barely a day goes by now that we don’t hear something in the news regarding the ‘property slump’. Take these recent headlines I cut and pasted from the New Zealand Herald’s website:

  • Housing gloom will hit wallets - Treasury
  • Property value growth down on previous period
  • Do you think there will be a property slump?
  • Expert advice: Wait for housing crisis sales
  • To rent or buy - that is the question
  • Residential building slows
  • Auckland now a buyers' market - real estate agency
  • Dramatic drop in loans for housing
  • Mortgage figures show housing market decline

There is no doubt that New Zealand is heading in to what will probably be a prolonged period of slow growth, and in some areas prices may yet fall (see Tony Alexander’s report on the following page). Certainly there is no shortage of experts predicting the housing market collapse. Inevitably there are others still claiming prices will hold. It will be interesting to see how all this plays out over the next few years.

A slow down in the market is not necessarily all doom for homeowners. First of all unless you are either buying an investment property or selling your home and moving overseas then you will be buying and selling in the same market which means you will be no worse off. Secondly, for most people who have owned their homes for more than a few years prices will have to fall a long way before their property is actually worth less than what they paid for it. And thirdly interest rates will only fall when the reserve bank feels the housing market has cooled sufficiently. A falling housing market has all sorts of spin-offs such as reduced discretionary spending which combined with high petrol, power, rent and borrowing costs for both consumers and businesses could fuel a general economic downturn, and that is not good news for anybody.

The days where you could buy a property almost at random and flick it off a year later for tens of thousands of dollars profit are gone – for now at least. But the good news is that if you are in it for the long term then history shows that property prices trend upwards. Owning property is still a natural hedge against inflation. As long as you can withstand high interest rates for a few years then there is nothing to worry about, just be sure to keep your levels of borrowing in check. Now is the time to have more money in cash and lower levels of gearing.

Cash is king in the current market. If you have been considering consolidating some of your investment properties now may be the time to do it. Then if prices do fall significantly over the next year or so you will be in a good position to pick up a bargain or two.

If you would like to discuss any of these issues or if you have any real estate questions at all then please don’t hesitate to give me a call anytime on 021 764 647


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