How To Handle The Fallout

Investors are likely to take a hit, but a long-term approach can ease financial pain

- Pam Walkley

In times of great uncertainty, such as we are experiencing now, it pays to keep in mind that things will inevitably improve. This also applies to our property investments.

Undoubtedly property investors are currently in a better position than sharemarket investors, who have seen falls of about 30% in share prices in the past couple of months amid extreme volatility. But it would be unrealistic to think the housing market will not be hit too, especially since unemployment is likely to go through the roof, potentially triggering a deep recession.

We could see value falls of 20%, maybe more, but for both investors and home owners who can hold on this will only be for a time – though whether it will be short or medium term is impossible to call at this stage.

A relatively short recession that sees unemployment rise to around 7.5% would likely set prices back only around 5% or so, after which they would bounce back, says AMP chief economist Shane Oliver.

But, warns Oliver, a deeper recession with, say, 10% unemployment risks tripping up the underlying vulnerability of the housing market with its high prices and high debt levels. This could see a 20% fall.