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Which properties suffer the most in a buyer’s market?
There is plenty of evidence that our property markets have changed…
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From the hot “sellers’ market” of the past few years, when vendors called the shots and the price of many properties increased at a dizzying rate, now there are more properties for sale than there are buyers as many are becoming a little nervous and holding back their purchase decision.
We are now in a “buyers’ market” where homeowners and investors now have the balance of power on their side.
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So should you buy now or wait for prices to drop further?
And which properties are likely to suffer most in a buyers’ market?
Let me answer these questions with a quick Q & A:
Q: What’s happening to property values around Australia?
As you can see from the chart below our property markets are fragmented with Brisbane, Hobart, Adelaide and Canberra and the combined regional market still rising over the last year.
However, since peaking in September last year, the overall Australian housing market has recorded a cumulative 1.9% fall in value.
Clearly Australia’s housing markets are not performing anywhere near as badly as some of the scary headlines would suggest.
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In fact we’re experiencing a relatively mild downturn considering that nationally house prices are still 31% higher than they were five years ago.
A: What happens next will be dependent on availability of finance and on consumer confidence.
The availability of credit is unlikely to improve until next year and this together with the negative media headlines appearing on a daily basis is likely to dampen consumer confidence.
I see property values in some locations of Sydney and Melbourne likely to keep falling until next year.
However, while the value of some properties may fall a further 5% in some locations, home values are holding their own and in fact increasing in other areas.
In other words our two big property markets are exhibiting a soft landing.
The Perth property market likely to bottom out in the next 9 months, after more than four years of falling prices, but it’s recovery will be slow and values are unlikely to start increasing any time soon.
Hobart’s strong growth is likely to slow down over the next year and Brisbane will probably be the strongest property market over the next few years.
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Q: If I’m looking to get into property should I buy now or wait for prices to drop further?
A: While the markets have weakened, the supply of good properties has also decreased meaning “A grade” homes and investment grade properties are still holding their values – even in the weak Melbourne and Sydney property markets.
So rather than trying to time the market, if you’re a home buyer your family needs should really dictate when you buy your property.
In fact if you’re a first home buyer, it’s a great time to take advantage of the banks’ willingness to lend you money.
And if you’re an established home buyer, it’s a perfect time to trade up your home, which may be worth a little less today but so will the property you are buying.
On the other hand, if you’re an investor the right time to buy is when you have the finance to do so and it fits in with your long-term plans.
Don’t try and time the market.
Think about it…it’s the first time in years that we’ve experienced a buyers’ market in Sydney and Melbourne, but this hasn’t changed their long-term outlook.
The fundamentals of strong population growth, a robust economy with excellent jobs creation and State Government infrastructure spending will underpin their property markets.
Q: Which segments of the property market are likely to suffer the most in a buyer’s market?
A: Fortunately, we can learn lessons from the past.
Each quarter Core Logic releases its Pain and Gain Report giving insights into which type of properties are resold at a profit or loss.
While the vast majority (89.8%) of properties sold in Australia deliver their owners a profit, some trends have emerged:
Around 10% of all properties sold sell at a gross loss for their owners
Apartments were more likely to sell at a loss than houses. This is most likely due to the high premium many investors paid for their new unit.
CoreLogic reports that in the last quarter Melbourne units were 10 times more likely to re-sell at a loss than houses. This was much the same in Brisbane (9 times) and Canberra (8 times). On the other hand, a greater proportion of units re-sold for a profit than houses Sydney and Hobart over the last quarter.
More regional properties sell at a loss than those in our capital cities.
Currently locations where there is a high supply of new apartment projects are likely to suffer due to the significant oversupply. Places like the Brisbane CBD and Fortitude Valley or Paramatta, Harris Park, Homebush Zetland, Ryde in Sydney.
It’s nothing new, I’ve said it often before, but it’s worth repeating: Avoid off the plan properties as, on completion, a large proportion of these units value in at considerably below their contract price.
I would also avoid locations where the residents are more likely to suffer from mortgage stress. These tend to be outer suburbs where young families have stretched their finances.
And as always, I would steer clear of the many property spruikers disguised as investment advisers but who are actually working as project marketers for developers.
They lure naïve investors in with their get rich quick schemes – but that’s not how property works.
As Warren Buffet said: “Wealth is the transfer of money from the impatient to the patient.”
Q: What does this mean moving forward?
A: The key to property success is to buy well located properties, as the location of your property will to do most of the “heavy lifting” on the performance of your property.
While there are still many buyers in the market, there has been a “flight to quality” – purchasers are bypassing secondary properties.
Currently important factors for buyers are lifestyle and access to good public transport.
Getting around our big cities will not get any easier in the future and people will pay a premium to live in “walkable” locations and near public transport
Q: Let’s finish with some tips for buying well in a buyer’s market
Firstly, don’t try and be smart and time the market – even the experts can’t time the market. But don’t rush in and make an emotional purchase.
Instead do careful research – not just on line – but pound the pavement and get to know local prices and understand how the local market is behaving and make sure you don’t overpay.
Now more than ever it is important to get a good team around you including a proficient mortgage broker to help you through the maze of finance and the banks, and a buyers’ agent to help level the playing field when you’re in the thick of things against agents.
Don’t be scared to buy at auction – there is generally less competition nowadays.
Be prepared to buy before auction but be careful. Currently agents are trying to convince buyers to make pre-auction offers because they have only one or maybe two potential buyers for a property and they don’t want to end up conducting an auction where there isn’t competitive bidding.
Of course I understand why some purchasers like the idea of making a pre-auction offer – they see it as an opportunity to avoid competition on auction day – but sometimes what they’re really doing is overpaying because there is really no one else to compete against.
If there was another buyer to compete with generally the agent would be happy to take the property to auction.
Once you do buy a property, don’t compulsively follow property prices on line. This will only lead to buyer’s remorse. Instead be reassured by the long-term fundamentals that will support our property markets and the value of your property.
The Bottom Line:
If you are considering investing or buying your new home, why not take advantage of the buyers’ market?
While experienced investors love these markets because they have more time to make decisions and can negotiate with more effect, it seems that many beginning investors find it easier to decide not to buy.
Why is this?
I guess one reason is that in a sellers’ market less experienced investors gain comfort knowing everyone else is buying.
The buying decision is so much easier when we see lots of others around us doing the same thing. We feel it must be a good decision.
Yet when it comes to making that decision to buy in one of these softer buyers’ markets, we seem work on the notion: “I guess there must be something all those “non-buyers” know that I don’t know.”
I’ve found that when all the news in the media is good and breeds content; happy, self-assured people are comfortable making decisions to buy stuff like homes, investments and cars.
However, at times of uncertainty or when we get bad news or mixed messages in the press, this does not breed ‘happy people’.
One thing is certain: we can’t accurately predict the peaks and troughs in the market. Yet we can sit on the sidelines and wait until the market starts rising again and then compete with the new herd of confident buyers.
This group of investors will always pay more than those who are looking for good deals in the quieter buyers’ market. In times just like this.
The bottom line is that this will only be a buyer’s market for you if you buy.
As an investor you need to take a long-term view, do your homework and research carefully to make sure you don’t overpay and go out and buy that property today that you would have had to fight much harder for a few months ago.
Michael Yardney is a director of Metropole Property Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia’s leading experts in wealth creation through property and writes the Property Update blog.
