COMMENT: Last week I wrote about how I first got into the property market, way back in the 1980s, and why the experience that I’ve gained over that time has stood me in good stead in the years since and has given me confidence about what lies ahead. Essentially, my position was that the current market jitters are the result of the Reserve Bank decision to increase mortgage interest rates, coupled with the entirely predictable effects of recent ill-considered amendments to the CCCFA – changes which, between them, have spooked buyers and frozen market confidence like the proverbial deer in headlights.
In the week since I wrote the article, I’ve received a number of emails from readers who are understandably concerned about the change in market mood and who are asking for advice about their particular circumstances and what I would recommend that they should do. Some are homeowners, others are investors, and – almost without exception – they’re people who are relatively new to the property market and for whom a period of uncertainty is a new experience (first Covid lockdown notwithstanding).
I’m always hesitant to give such specific advice – partly because people don’t always disclose their entire situation and the omission of even small details can substantially change their options; and partly because I’m not a certified financial adviser and my commentary tends to be at the macro, rather than micro, level. Accordingly, there are people better qualified than me to deal with helping to resolve the specifics problems that people can face.
But what I can do is talk about what I would do if I was just starting out in property, facing the current hysteria, but knew what I know now as a more seasoned property commentator:
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1. I wouldn’t panic
Your response to what’s happening in the market should be based on your own circumstances, not fear based on what the headlines tell you might happen. Remember, just four months ago, all of the headlines were about the pace at which house prices were rising and the plight of first home-buyers who may not be able to get onto the property ladder. My point? Judging the condition of the market by any one particular report or headline can be dangerous. In reality, things change constantly in the property market and today’s concerns will also pass. The issues we’re facing right now do not define the market forever, and may not even define where it is three months from now. So, I wouldn’t panic and I certainly wouldn’t be contemplating selling unless I had a specific reason for doing so (affordability, moving to another city, change in family size, retirement etc.) House prices may move around a bit, for a while but, based on the evidence of the past 40 years, the market isn’t going to crash and the overall, medium term, trajectory for prices is the same as it always is - up.
Ashley Church: “Things change constantly in the property market and today’s concerns will pass.” Photo / Ted Baghurst
2. I’d master my cashflow
My first practical step, if I hadn’t already done so, would be to draft a budget. This is crucial because, without knowing what I was earning and spending, I’d be flying blind. The power and control that a budget provides is incalculable (pun intended) and would enable me to make decisions that I simply couldn’t make without one. It wouldn’t need to be complicated – an Excel spreadsheet would be more than adequate and would give me maximum visibility. Oh, and I’d budget weekly, not monthly, and project that budget out over at least the next twelve months.
3. I’d address any existing or anticipated deficit
Once I had a budget, I’d go through it and anticipate any possible changes in my circumstances over the next 12 or more months. I’d factor in any additional earnings (or loss of earnings), any known cash windfalls or big expenses, and if I had a fixed rate mortgage coming up for review, I’d take a stab at guessing what I’d be paying on that after it’s renewed. Once I’d completed this experience, I’d be able to anticipate where I’d be, financially, 12 months from now.
4. I’d make decisions based on good information
Only once I had this information in hand, would I act. If my budget showed that my cashflow was still positive in 12 months’ time I’d relax in the knowledge that I could ride out whatever happens over the next few months. If it was negative, I’d look to see where I could make savings or earn more. Only once I’d exhausted these options would I consider more drastic measures such as selling my property or talking to my bank or mortgage broker about my options.
Just by following these simple steps, I’d gain control over my situation and be in a better position to make good choices. Whether you elect to follow a similar strategy is up to you – but, in my experience, the act of taking control of your finances will give you the power and confidence that you need to ride out any real or imagined storms.
Best of luck.
- Ashley Church is a property commentator for OneRoof.co.nz. Email him at [email protected]
