The recent drop in the official cash rate (OCR) by 0.25% has sparked a flurry of speculation about the future of the property market. Those hanging on for dear life are desperate for good news and recency bias is at work here – many believe lower interest rates signal a return to the boom times. However high on hopium property hodlers are, reality is a bit more nuanced.

Property works as a wealth-building strategy, partly because you’re borrowing currency that loses value over time, to hold property that appreciates over time. Over the last 50 years, in many places around the world, property has risen by about 6-7% a year. Of course, this trend might not continue into the future, but if you want to double your money with property, you should hold it for at least 10-12 years (this is roughly the time it takes for prices to double in value).

For more context: Investment strategies often involve taking a financial position in some sort of asset. How, what, where and when you acquire and dispose of these assets depends on your choice of tactic. Each tactic demands a set of actions in order to achieve success. With property, there are several tactics you can employ: buying for yield, aiming for capital gains, engaging in short-term flips, or even subdividing land, among others. However, the most common tactic is this: You buy a high-value home to live in, and you sell it only when the last kid moves out. You then buy something cheaper elsewhere. The ‘aim’ is to use capital gains to repay your mortgage and provide a lump sum of cash to fuel some of your retirement.

Consistency is key. That means it’s not about timing, it’s about time in the market. Deciding when to sell your property should be pre-determined. Just because interest rates are high, tenants have caused some damage, or you need a new roof, it doesn’t mean you change course. It’s tough sometimes, but for any investment strategy to succeed, we must choose a tactic, and adhere to the specific set of actions that can make it a success.

Do what’s right for you of course, and if you need to sell, do it. However, the most common mistake I’ve seen repeatedly with property, is people giving up just because things get hard.

Now, if you’re still with me: I want to challenge the notion that property prices are set to rise simply because we’ve had a rate drop. Looking at markets like Canada, the UK, Australia, and the US, we can infer potential trends for our own market. The Bank of Canada has already lowered its benchmark interest rates twice this year. Here in New Zealand, we’ve just experienced our first decrease. Many expected a surge in housing activity, but in Canada, surprisingly, this hasn’t been the case. In some areas, average prices are still falling.

My view, and it’s just a view, property prices will continue to fall until the interest cost on an 80% mortgage equals what you could pay in rent for the same property.

We have a long way to go before we see affordability dynamics pushing up property prices again. It’s like inflation – when it drops, it doesn’t mean prices fall; they just increase at a slower rate. From my observations over three property cycles, both personally and professionally, I believe prices will fall until we see interest rates around 4.5% again.

So, will a drop in the OCR of 0.25% really ignite a boom in the property market?

I really want the property market to ignite, but is it possible that others, wanting it to be true also, are only telling us what we want to hear?

If you need to sell, sell.

If you need to buy, then buy.

Forget the market and just get on with it.

But if you think now’s a good time to offload your property because we’ve had our first drop in the OCR, think again. You may find the only one’s motivated are all the other vendors thinking the exact same thing.

Strategies that require time to succeed, actually need time to succeed. There’s no short cuts. Some of this time may cut through a property correction, or a job loss, or something even worse.

But ask yourself this question: From a long-term perspective, has anything fundamentally changed with property?

Not really?

Then why on earth are you selling?

A leveraged property strategy remains viable because real estate continues to be the base collateral for currency creation in our debt-based financial system. Until that changes, it’s all about time in, and not timing.

For those who can afford to hang in there during the tough times, be encouraged that better times are coming…just not yet.

Check out the full conversation with Canadian property and mortgage expert Nolan Matthias.