Many people have been taken by surprise with the changes we are experiencing in today’s property markets. After two decades of strong capital growth and a generally robust housing sector, the recent weakening of property prices has spooked many inexperienced investors and home buyers.
For those of us who have experienced the ups and downs of a couple of property cycles, this slowdown is nothing exceptional. Rather, the extended boom conditions we witnessed during the last decade were contrary to the norm.
Conditions are currently presenting us with the perfect buyer’s market.
There are more properties for sale than there are interested purchasers, because many are concerned about ongoing talk of affordability issues, over-inflated property values and the future of interest rates.
Then there’s the rising cost of living, with the government’s proposed carbon tax adding to concerns about ever increasing household expenses. In fact Australians have done a dramatic about face in recent times, with more of us picking up where our parents left off and choosing to save our pennies rather than take on extra debt.
This renewed enthusiasm for filling our financial coffers is reflected in higher household savings ratios, the current low transaction volume for real estate (22 per cent lower than the long term average) and new home sales, which grew by just 0.2 per cent in April according to the Housing Industry Association.
All of these changes and consumer uncertainty, along with continuing negative press surrounding housing, has seen potential buyers sit on the sidelines; wary of making a mistake and either buying the wrong property, or over-committing to something that could slide in value.
According to RP Data, capital growth across the major city markets is likely to remain flat in the medium term, with the potential for some decline in values if interest rates continue to rise.
We have seen an increase in distressed sales as some vendors struggle to meet growing mortgage repayments, particularly in traditional, outer “mortgage belt” suburbs and houses languishing on the market for extended periods as sellers fail to meet the lower market expectations.
Although many Australians are probably in a better buying position right now than they have been for some time, with most of us who want to be employed managing to find work and household incomes increasing faster than the consumer price index, we are simply not seeing much in the way of property buying activity right now.
And this is especially the case in the first home buyers market and the premium end of our property markets. But these have never been the sectors I’ve suggested investing in.
A recent example of how difficult vendors are finding it to move property in today’s market is the sale of a Toorak house. The property, last sold in 2006, was listed for auction in March where it passed in on a vendor bid of $2.8 million and was later advertised at $3.3 million. Last month, it again went to auction after failing to move privately and finally sold for $2.86 million – $480,000 less than the vendor was seeking earlier in the year.
In some respects, this buyer caution is not necessarily a bad thing, particularly for savvy investors. Essentially, for those with the right knowledge of values and an understanding of buying well, you couldn’t go wrong at present.
What is crucial to remember in a buyer’s market such as the one we are currently experiencing, is that you have to pay the right price for a property. Remember – there are vendors out there who are still asking too much, with inflated prices failing to reflect the dramatically different conditions of today, compared with just a year or so ago.
But if the property deal stacks up and ticks all the boxes, now is the time that savvy investors are taking advantage of the buyers market. Currently experienced investors are rejoicing in the fact that they can once again find so-called “bargains” and purchase properties for their portfolios below intrinsic value with much greater ease than they have been able to for some time.
This too shall pass and the tide will once again turn around and the market will pick up. It’s just a matter of time – like everything about property investment!
Subscribe & don’t miss a single episode of Michael Yardney’s podcast
Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.
Need help listening to Michael Yardney’s podcast from your phone or tablet?
We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.
Prefer to subscribe via email?
Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.