Charles-Drace On Falling House Prices
Charles Drace, CFP
Certified Financial Planner, author, lecturer
This is a comment on the current slump in residential house prices. My recent book predicted the slump and I have a recommendation for the many thousands of New Zealanders who have invested in the housing market.
The backgrounder has more detail, but I make these key points: - The slump is likely to last several more years. - Investors should now be deciding whether they can ride out a prolonged market slump and consider selling soon if they can not.
The slump may offer opportunities for buyers as it matures is a few years.
Historical trends suggest we still have further downwards corrections to cope with.
It's imperative that people develop a strategy to cope with falling house prices - immediately!
"Don't put off dealing with falling house prices - the problem won't go away," says Charles Drace, CFP, author of the popular 1998 book, `How to Avoid the New Zealand Residential Property Crash.'
In his book, Charles Drace made some recommendations of ways that homeowners and property investors could limit their losses. Recent news reports have confirmed that the downwards correction is continuing with a massive 12.5% drop in house prices in the last quarter.
One of the recommendations was for bank managers to meet with borrowers and develop a strategy for a falling market.
"Now that the property correction is accelerating," says Charles Drace, "those recommendations become even more important."
Previous researched cycles in history suggest this correction could knock about 40% off the real value of all residential real estate over a six year period. As we're two years into this cycle, homeowners and investors must act now.
If selling your property is the best option - do it now. If you're prepared and able to hang on to your property, plan on prices falling for a further two to four years and taking another six years or so to return to current prices.
If you want to buy property, wait for three to four years for prices to come down to a reasonable level. It's virtually impossible to make any return out of rental property if you buy when property is as overvalued as it is now.
In his book Charles Drace proves that over time residential property never increases in real value any more than inflation.
In the recent Reserve Bank publication, "The Real Story" Reserve Bank Governor Don Brash is quoted, "In reality, the inflation-driven capital gains of the past have come to an end." Now is the time to re-think your investment strategy if it includes property.