Private property issue #99 - How long will it take for prices to recover?

What if you bought a property at totally the wrong time?

I did that. In November 2021, I bought a property for $950k. Now, it’s worth about $110k less.

Property prices have started to increase (a bit). But how long will it take for them to recover fully? Let’s look at 3 of New Zealand’s largest cities.

Auckland will probably recover in 4 years

Auckland property values are 19.7% below their November 2021 peak.

If you bought that average $1 million property at the top of the market, it’s probably worth $803k today.

How long will it take for your property’s value to get back to $1 million?

According to our modelling, the market will likely take around 4 years to recover. But that’s just the average.

There’s a 25% chance that the market will recover in 2 years. And you’ve got a very good chance that the market recovers within the next 8 years.

How do you calculate these numbers?

In simple terms, we look at how fast property prices have gone up in the past (the good and the bad).

Then we run 30,000 random simulations based on that data. This gives us a sense of what might happen in the future.

In technical terms, this is called a Monte Carlo simulation. Financial advisers use it to estimate risks and probabilities.

So if Auckland has a bad run of property price growth, it could take up to 8 years to recover.

If you have a good run, your house value could bounce back in 2 years. The average is 4 years from today.

Lower Hutt will take longer to recover

Lower Hutt will likely take another 7 years before house prices fully recover (2031). Though it could easily range between 3 and 15 years.

The reason is twofold:

1. Property prices have fallen further than Auckland. They are currently 26% below the peak
2. Property prices don’t tend to go up as fast in Lower Hutt compared to Auckland.

Hamilton will be a bit quicker

Prices in Hamilton are down 13.4% compared to the peak. They haven’t fallen as much as Lower Hutt.

That’s why prices there will likely recover in 4 years.

Like in Lower Hutt, property prices don’t tend to increase as fast as in Auckland. But they haven’t fallen as far.

So Auckland and Hamilton will likely get back to ‘peak prices’ in a similar timeframe.

Could these nerdy numbers really predict the future?

In short, yes.

These numbers line up closely with New Zealand’s last property market downturn.

After the GFC, Wellington property prices fell 8%. It then took 8 years for the Wellington region to recover fully.

I won’t blame you for thinking: “8 years is a long time! I don’t want to wait that long”.

Fair enough. But remember, when you bought your investment property, chances are you did it for the long term (15+ years).

What would have happened if you bought in Wellington back in 2008 and sold after 8 years?

You would have lost money (after real estate fees).

But if you held for 15 years, you would have almost doubled your money. Because then Wellington property prices took off.

It’s easy to look back now and think: "2021 wasn't a good time to buy a property".

Believe me, I’m there with you too.

But you invested based on the information you had at the time. The only thing to do now is to hold for the long term.

I know that’s hard when interest rates are high. But, if you can hold for the long term … it’s often the right decision.

Remember, to get the benefit of long-term property investment, you’ve got to invest in property for the long term.