What’s up with property?
If it’s munted, perhaps we should move on and think about different things. If it’s just a little sick, well we know in all probability, it’s likely going to get better. Maybe we should we prepare for the season in which property recovers?
If you’re currently a home owner, with or without a mortgage, or you’re looking to purchase a home at some stage, the goal right now is to identify the change in conditions required to prove things are going to be just fine with property. If you’re determined to be focused on time in (highly advisable), rather than timing (not advisable), then confidence is the name of the game here. Some of that confidence comes from understanding that we’re just in a season right now.
The property market, or the economy for that matter, is being treated right now with a medicine known for its nasty side effects. We’re in a season where we as borrowers, have to endure rising mortgage costs, at the same time as we endure rising costs everywhere else. Are booms and busts just part of a normal existence, or is it a function of too much fiscal fiddling’s, and monetary manipulations?
Central banks around the world created too much new currency at the worst possible time, and the main cure they use to fix the problem they themselves created, is higher interest rates.
The only thing worse than high inflation, is a failure of a fiat currency system. We have to deal to the cancer in the system, before it takes root. The money-world we live in has so many risks, but some are scarier than others – the break down of a financial system is one of them. As much as I love gold, I really don’t want the world that it comes with. Charlie Munger calls inflation a threat greater than nuclear war. Although there’s questions to be asked around how accountable central banks considering the risk they’ve put us in, but now, we need to deal with this.
New Zealand’s reserve bank, is making the cost of money higher, right now, to combat inflation by adjusting the OCR, the official cash rate. Indirectly, this influences the interest rates we pay on our mortgages. When this happens, our homes, our next home, share portfolio, managed fund, property or crypto portfolio (pretty much any assets we own) experiences downward pressure on their value. In a simplified world, inflation subsides after a brief dose of higher interest rates.
In a complex world though (like let’s be honest, the world we have right now), when you’re experiencing supply side issues from pandemics and wars and government spending at record levels, raising interest rates too far, for too long may cause unanticipated side effects that haven’t yet been observed. Risk changes during these times, both qualitatively, and quantitively.
Risk and opportunity converge in times like this, because most of time, most of us, can never guess what’s coming.
Fear causes us to sit on our hands. So if you sense a lot of people are afraid right now – from inflation, global conflict, all that sort of thing , maybe right now consider this: Is this start of one of the best seasons to purchase property? It’s a bit cliché now, but I’m reminded of this saying of Warran Buffet-
Be fearful when others are greedy. Be greedy when others are fearful.”
How can you ‘be greedy’ when others are fearful?
I work a lot with a group of people I refer to as the ‘upgraders’. With 1 or 2 parents working and kids about to hit school, often while their home is fine, it’s getting a little small now the kids are getting bigger. They’ve gone through the expensive expectation adjustment lessons from trying to renovate, and they’re really to sell and buy something with more of the missing ingredients required for the next stage of their life. It may not sound that tricky selling one home and buying another, but there’s actually a bit to it, and there are ways to do it really efficiently too. For example – if you can, always upgrade in a downward market (The problem is, we never have downward market for long enough!) We may have one now though, so here’s how it works: Assuming you sell and buy in the same market, the discount you give away on the lower value home you’re trying to sell, is a smaller amount relative to the amount saved on the new purchase. You gain a better discount than you give away. If ever a property ladder did exist, this could be a valid rung. Now is a good time to do the numbers here.
In this episode of the podcast, my guest is Jarrod Kerr, chief economist at KiwiBank. We’re talking about some of the signs and symptoms of an economic sickness that households, the NZ economy, and the broader worldwide economy has to endure for a season to get to ‘the other side’.
If we can understand the environment our property lives in a bit more, we should have a clearer picture on what comes next for house prices.
Or check it out on YouTube here