The property market is showing signs of weakness and prices have fallen significantly over the past 12 months. Even though the momentum is strongly down and prices could easily fall further, for most people there will be no impact.
A small number will be very happy. Some may have been extremely lucky, and some may have planned well and executed their plan. But many bought when loans were plentiful and prices rampant.
The property markets in Sydney and Melbourne are not the only areas in which investors or business people get themselves into a situation where they can’t see a way out.
It could be a business that was started with great positivity, but now the ambitious targets are not being met, and costs are higher than expected. A very small proportion of new businesses last for 10 years.
It could also be an impending divorce, where one or both spouses cannot see a way out.
The fog of emotion can be overwhelming
The pain for those involved is often overwhelming and, in most cases, they get blinded and paralysed in a fog of emotion. It’s the regret of putting their family at risk, the embarrassment of the perceived bad decision, or the fear of not knowing what will happen next.
How people react under serious financial stress varies. Domestic violence statistics show a correlation between financial stress and an increase in domestic violence. Also, divorce, substance abuse, and suicide increases. For most in this category, avoiding the reality is the common response, and few know what to do.
A go-to method
There needs to be something that snaps the sense back into the scenario. If it’s serious, then the situation needs to be addressed. One way to find a path out of the fog is to pretend to be an investigator at the scene of an accident.
First, understand what has actually happened. The facts as they stand – current values, debt, income and expenses. Get it all clear. This immediately starts creating some distance and dissipates the emotion.
Then, understand how it happened. I have often found that the way in which decisions are made that caused the problems in the first place are often the same method as used under pressure — someone with a tendency to make quick, unresearched decisions will make quicker decisions when stressed. Usually, there is a set of money beliefs behind the method, and awareness of these limiting or sabotaging beliefs will go a long way towards making the changes necessary.
It’s important to be absolutely clear on ‘where we’re at and how we got here’. Only after that, can the focus move to the future.
The solutions begin with a focus on what’s most important. If this is about financial survival, elements like retirement planning are irrelevant. Identify what’s most important first.
Then do some ‘what-if’ scenarios — and start with the worst. It’s never as bad as it seemed, even though values may have fallen, debt is high, and income is difficult. Map it out in detail, and then change the assumptions. Interest rates rise, values fall – maybe it doesn’t look good.
A strange thing happens in this process – solutions start emerging. The focus on what’s most important before creating the scenarios, together with a natural human tendency to adapt, results in solutions emerging quite quickly.
It’s unlikely that the full implications of the falling property market have yet been seen but they are certainly already being felt. Life is always going to present challenges, many of which will be reflected financially, and the way in which these challenges are met will make a massive difference. Having a go-to method to remove the confusion and inertia resulting from the ‘fog of emotion’ will not only eliminate major errors but will also create opportunities.
It’s never as bad as it seems, and there’s always a solution.