Market Crash? Not Likely | Impression Real Estate
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Market Crash? Not Likely

Posted by Impression on 03, Dec 2018

There are plenty of people panicking about an impending property market crash in 2019.

Infometrics is saying prices will fall by 12% next year, the Reserve Bank governor is warning of a potential fall, there’s an Australian property recession and international pundits are forecasting serious problems for all the big economies.

On the other hand, New Zealand is looking pretty solid in many respects. Our economy is growing steadily, rather than dramatically, and consumer spending remains strong. While immigration levels have reduced, we’re still getting a net gain of around 64,000 people a year. The housing shortage is easing but there’s a backlog of demand, plus the high cost of building is making life tough for developers. Interest rates are at historic lows and not going anywhere – and the Reserve Bank may even lower the official cash rate.

But even an island nation isn’t an economic island – if our trading partners have problems, then we have problems. If the cost of borrowing offshore skyrockets, we’ll see borrowing costs here increase as well. If the Australian banks go into panic mode, they will probably change the rules for all their New Zealand subsidiaries.

Where does that leave us? Should we be worrying about a crash? For the average New Zealand investor, there’s no real cause for anxiety. When you are considering buying a property, provided you can afford to hold onto it for 10 years, these ups and downs are simply part of the market cycle. When property prices drop, that’s your opportunity to buy more cheaply. When they rise, you grow your wealth.

Over time, it’s reasonably safe to think that your property will grow in value by an average of 3% per annum. That means a good $450,000 apartment purchased in 2019 will be worth around $605,000 in 10 years, and $812,000 in 20 years. There may be points in time, particularly early on, when the apartment is worth less than what you paid for it. But you’re in this for the long haul – there’s no need to be alarmed by bumps along the road.

We don’t have a crystal ball. We can’t know whether there will be a property market crash. All we can say is that it seems very unlikely from our point of view – and even if it happens, most of our clients are in a secure position and should be able to weather even a significant storm.

© 2019 Impression Real Estate Limited - Licensed Real Estate Agent (REAA 2008)