www.mcgrath.com.au
With so much minute analysis of the property market these days, it seems many buyers are trying to ‘pick the cycle’ when it comes to buying.
I’ve heard of many people, especially young ones, holding off on purchasing because they’ve read somewhere that the market is going to drop some time soon. Let me tell you, it’s not going to happen.
Property is a long term proposition. Yes, markets do have soft and strong periods; interest rates impact sentiment, so do Government incentives for first homebuyers and investors. One quarterly report might say the market is off 2%, the next one will say it’s up 2% and every property researcher calculates quarterly price changes differently, which can make things even more confusing for buyers.
This is the natural ebb and flow of the market. If you’re waiting for a significant drop in property values, you’re wasting valuable time. You can never pick the top or the bottom of the market until each have well and truly passed.
Have a look at the history of property values in Australia. There’s always been a steady rise over the long term. If that’s not enough to convince you, factor in all the things that are making our property market one of the world’s most stable right now.
- A strong economy
- Strong population growth
- An ongoing shortage of property
- Increasing rents
- Greater interest from offshore buyers
These are strong, unchanging trends. The market is not about to drop dramatically.
Now before you say it, yes, we did experience a significant drop (20-30%) in prices during the GFC in some parts of Australia. But that was DURING THE GFC. I stress this point because it’s not so shocking that property prices went off the boil during the worst financial crisis the world has ever seen.
And did prices recover? Yes, and then some, within about a year. And all this while many markets around the world dropped by 50% or 60% and are still flat today. Why do you think so many offshore buyers are buying Australian property today?
I suggest you actually take comfort in the fact that it takes a catastrophic once-in-a-lifetime event like a global financial crisis to disturb Australian property prices in any significant way.
Buy when you are personally ready. Don’t try to pick the cycle – you’ll end up frustrated and disheartened, and while you’re sitting on your hands, the odds are prices will rise. If you’re ready now, it’s time to buy.
One more issue to discuss. It seems to me that the buyers who are focused on picking the cycle are doing so because their budgets are very tight. I agree, it’s good to have a budget and stick to it. But I have heard of instances where young people can borrow say, $700,000, but they’re trying to find a house for $550,000 because the prospect of all that debt makes them very nervous.
It’s good to be careful about your affordability. However, it’s not the grand sum total of debt that affects you week to week, the only thing you have to worry about are the repayments. So in the example above, if you can afford the repayments on a $700,000 loan, with a decent buffer for interest rate rises, you can afford to have the higher debt and a better property.
When we were young, we were taught to pay off debt as quickly as possible. Times have now changed and most of us will live with a home loan our entire lives.
Smart debt, such as borrowing for a home, enables you to build a stronger financial future. For most people, income and super simply aren’t enough for a good life, investing is the only way to generate real wealth. So if you can afford the repayments on a better home in a better location, do it. The property will appreciate in value faster and you’ll enjoy a better lifestyle!
