“Bubble talk” and how to be prepared

With house prices surging around the world, It’s been predicted by some that New Zealand’s housing bubble will burst. Back in 2014, Forbes reported the country’s property market was the third most overvalued in the world. More recently, the Reserve Bank of New Zealand announced that over the past eight months house price growth has slowed down. And Goldman Sachs have forecast a 40% chance of the bubble bursting within the next two years.

While it can be worrisome to anticipate, if the bubble does burst, there are steps you can take now to be prepared. The stability of the market is out of your hands, but there are direct actions you can take to soften the potential blow.

If you’re looking to buy property, first ensure you can afford it. It might sound obvious, but it’s easy to get in over your head and buy something more extravagant than you need. Rather than buying purely with investment in mind, think long-term and look for a place you’ll be happy to call home.

Paying off your mortgage as soon as you can should be a top priority. Hopefully you’ve been making your regular loan payments, and if you can increase them, now is the time to do so. It may also be worthwhile trying to renegotiate the terms of the loan with your lender.

Reviewing your loan on a regular basis with your adviser will help you determine if you need to alter your loan structure or see whether they can put you on to a better rate or term to maximise your ability to pay it off quicker, rather than rolling it over on say a 2 year fixed rate every time it comes due.

With this focus on saving, you’ll want to cut back on any unnecessary expenditure. When if a bubble bursts, there can be instability in the job market. To reduce this stress, get on top of your finances as early as possible. Keep to a budget and be smart with your money. Be conservative with your earnings and plan for the future.

And finally, holding realistic expectations around how much your home will be worth in the future will keep you on track. The increase in value you might have originally envisaged might not come into fruition in the current market. While that can be disheartening, expecting to receive much more than you initially paid for your property will set you up for disappointment.

Whether the bubble bursts in two months, two years or two decades, being aware of what you can do in this scenario will help you be more resilient and adaptable for a strong future. Also remember if the market does go down it will usually always go up again in the future, so having the courage to hold on to property during a downturn will mean you won’t realise a loss and will reap the benefits when the market rebounds as it did after the Global Financial Crisis.