It’s Time
Adjusted for inflation, New Zealand’s property prices have cratered over the last 3–4 years. For Kiwis with a lump of lead in the belly, take heart. This downturn isn’t just an omen of doom, it’s the sound of opportunity. For first home buyers and upgraders, the ladder has never been more visible, especially for those who once felt locked out.
The Contrarian’s Advantage
Mortgages today are cheaper to service. Interest rates are easing, and mortgage advisers are whispering about a 20% rise in borrowing power compared to last Christmas. It’s the economic equivalent of adding rungs to the ladder just when the climb gets tough. The result? A subtle tailwind for house prices. If you’re in the wings, wondering whether to act, ask yourself: If not now, then after the horse has bolted?
Buying property now, while confidence is down and homes are beaten up, is a kind of leverage. It’s like a form of leverage, helping you get further, faster. But this kind leverage requires guts, and a sharp turn to the the oncoming freight train of sheep heading your way. It means leaning into uncertainty, trusting the mathematics of cycles, and, most importantly, acting while others freeze.
Got Guts?
Downturns are triggered by changes in fundamentals: inflation spikes, rates rise. When that happens, disposable income shrinks, and suddenly, the crowd panics. Despite our love for individualism, we move as a herd. Why buy when it feels like catching a falling knife? Because cycles are real, and recognition of them means stepping in when everyone else steps back.
Part of being human is the inability to think two thoughts at once. We’re captivated by disaster. The car accident on the motorway, juicy gossip, a friend’s misfortune…These distractions blind us to the opportunity beneath the headlines. But, as Benjamin Graham, the father of value investing said, you need a margin of safety: buy for less than intrinsic value and let time do its work.
Margin of Safety.
In property terms, a margin of safety means buying below what would otherwise be considered a ‘fair price’. Markets often overshoot on the way up, and on the way down. Why? Because people are as irrational as the things they do! Weather, media, the price of butter, and even policy errors out of the Reserve Bank, are all wildcards that can create more bargains for those with courage.
Wait, You Mean They Made A Mistake?
Yes, and it can’t be overstated (because mainstream media won’t touch it). The Reserve Bank of New Zealand were justified in dropping the OCR following March of 2020. If they didn’t, it would be a recession on top of significant distress. The mistake they made was that they kept it there for 18 months though! Then, after triggering inflation, they hiked over 19 months all the way to 5.50%! The reason this is important, is because they’ll likely do something similar soon.
While prices have tanked, it should be noted that saving a 20% deposit is still extremely challenging, and the type of property within reach of these first-timers are often the slowest to rise in value. The next rung up is a different story though. Upgraders with growing families feel their own squeeze – they often wait until they can eek out a gain on their current home, but by then the new property (which often grows at a faster growth rate), is just beyond reach.
A margin of safety strategy assists in making a purchase, a good move, but that assumes once can, in fact, make a move in the first place. If in doubt, reach out to your bank or mortgage adviser before going much further.
The maths.
Consider this: Selling in a down market seems foolish – who wants to lock in a loss? But if both the home you sell and the one you buy have fallen by, say, the same percentage, you’re discounting a smaller amount and getting a larger markdown in return. The discount you receive outweighs the notional loss you book, especially if you’re trading up.
The math checks out – you should always take ground in a falling market. The issue is psychological. To climb the ladder, especially when the ground beneath is shaking, you have to be willing to think and act against the crowd.
Blood in the Streets.
Baron Rothschild, from the famous banking dynasty, put it this way, “The time to buy is when there’s blood in the streets.”
Interest rates are still [relatively] too high, and although they’ve dropped, it hasn’t reignited a property fire yet. There’s still blood in the street. Since the peaks of 2021, New Zealand’s home prices have declined for over three years (even more after inflation). But this won’t last forever; cycles always turn as sure as day follows night.
Downturn are onramps for first home buyers and upgraders. Suddenly, there’s a way when there was no way before…Suddenly, that bigger home (and more space for a growing family) appears within reach. Ignore the blood, even if some of it’s your own!
Time To Act?
Property is a slow motion game of at times. Think too long and someone else takes your move. This isn’t easy, but sometimes, the difference between “lucky” and “unlucky” people is simple willingness to take the hard steps sooner.
