How to protect yourself from a property price fall
As more bank bosses predict price pain for Australian real estate, there are a few key points that property owners and investors should remember.
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There’s one sure-fire way to avoid losing money on a fall in property prices.
Don’t panic sell into a slump.
As predictions get louder that home values will head south, it’s worth remembering that losses in real estate are only locked in by transactions.
So anyone prepared to wait out any weakness is likely to be fine in the long term. House values in all capital cities have either doubled, trebled or quadrupled in the past 20 years.
However, not everyone is in the position to hold off on selling. Some will be forced by job losses or shrinking income caused by the COVID-19 recession, while others are already in the process.
Australia’s capital city house prices have held up relatively well during the pandemic and are still higher year-on-year.
The latest CoreLogic data shows home values nationally were down 0.4 per cent in August, largely because Melbourne fell 1.2 per cent and Sydney fell 0.5 per cent.
Adelaide and Perth prices were flat, Hobart and Brisbane moved just 0.1 per cent, and Canberra and Darwin rose.
We haven’t seen the 30 per cent price plunges that some forecaster previously mentioned, but there’s a chorus of concern among bank bosses that prices will drop at least 10 per cent in the year ahead.
The winding back of JobKeeper payments, the end of mortgage repayment deferrals and a weak economy are tipped to cause more forced sales that push down prices.
There are some ways to minimise the potential pain.
1 DON’T DOUBLE UP
Now is not the time to be buying real estate while still holding an existing property you plan to sell soon. If prices start falling fast, you don’t want to be holding two houses that are shrinking in value at the same time. The added expense of bridging finance means it makes little sense to double up.
2 TIMING ISN’T EVERYTHING
What happens in the next six to 12 months with home values is anybody’s guess. Predictions are really just looking through a cloudy crystal ball. Our modern world has never experienced a pandemic, so it has never experienced a recovery from a pandemic and what that might mean for all of us. Trying to time your buying or selling could see you with egg on your face.
3 SEEK FINANCIAL HELP
While banks are contacting customers to see if they’re able to end their mortgage repayment holidays that started when COVID hit hard in March, many are remaining flexible for customers who need extra time. Others are offering interest-only loans to reduce repayment costs for income-starved borrowers.
4 LOOK BEYOND COVID
Even if you are caught in a downward property price trend, it won’t stay that way forever. Prices have always moved in cycles, and have always grown over the long term. And when this horrible year – or two – is over, Australia will remain the best country in the world and interest to live here will grow, pushing up demand for housing and then house prices.