An economic downturn affects just about every industry in the economy and the real estate sector is no exception. Entering a recession isn’t automatically bad for everybody. While property values will tend to be lower in the short term, most homeowners will still enjoy financial stability in the long term if they intend on holding onto their property.
Below, the team at Mortgage Masters offers insights from an Auckland mortgage company with over 40 years of combined experience.
Property is Stable
While an economic downturn can impact property values, it’s important to remember that property is far less volatile than other forms of investment. For example, the value of company shares can dramatically shift or disappear during a recession, while a quality, well positioned property in a high demand area will continue to grow in value regardless of the market. As a tangible asset, property will always hold some value.
Property Values Recover
History consistently demonstrates that the longer you hold onto a property, the more it will increase in value. The housing market has always recovered from bubbles that caused appreciation to slip in the past. Those who held onto their properties during uncertain times saw prices return to normal with appreciation getting back on track.
Property is more resistant to fluctuations in the market as housing is a basic need that can’t be forgoed during an economic downturn. Even if the housing market crashes, you’ll always have a physical asset that will hold future value. As a basic necessity, housing will always be in demand. This makes it an investment with less risk and greater stability.
Buying Property During a Recession
Depending on your circumstances, buying property in Auckland or other areas of New Zealand during a recession can be advantageous. During periods of low economic growth, the RBNZ tends to keep interest rates down to encourage borrowing and boost economic activity. Low interest rates means it’s easier to pay your mortgage so long as your income and expenses stay the same.
Recessions also often bring about a fall in property prices. For example, buying property in Auckland, which recorded a 15 per cent drop in house prices in August 2022 from their 2021 peak, during a recession may be easier than other times. Keep in mind your personal circumstances, however.
Many of us also suffer a cut in income as well as higher expenses during a recession, which can make it harder to keep up with expenses like your mortgage. Ensure you also check home loan requirements NZ lenders may have changed during a recession.