TO BUY OR NOT TO BUY: THAT IS THE QUESTION
With so many buyers and sellers sitting on the fence, and especially given we have a federal election in less than two weeks, it’s no wonder stock levels are down across many suburbs we work in. Media reports play a huge part in sentiment too and with negative headlines abounding, it’s unsurprising that sellers are spooked. Now that the market has considerably cooled down from the peak of 2017, they are almost afraid to list their properties, lest they don’t achieve the results they think their property is worth. Buyers also remain heavily cautious, but for opposing reasons. Are they paying too much now? Should they buy or wait? Indeed, these are questions that we get asked on a regular basis now, so what do you do if you are in the market as a buyer?
Much depends on what type of buyer you are and if you are a home owner or investor. Whilst it’s no secret that rental yields are down here in Sydney many of the highest vacancy rates are in suburbs that have large new apartment populations or development coming on board. No surprises here. Unfortunately, tenants can be selective in many of these areas and retain the upper hand. Whilst lower rental yields shouldn’t be a disincentive to those investors chasing capital growth, it can still be costly to maintain and hold a property during a downturn, so comfortably servicing a loan becomes all important. Fortunately, we’re still in one of the lowest interest rate environments since the 1960’s, which certainly assists. With further interest rate cuts predicted, it’s also a prime time to be reducing debt, for those mortgage holders who can take advantage – with this applying especially to home owners. Credit, if you can secure it, is cheap, and the lower costs here can offset the higher costs of those associated with having to take a decrease in rental returns. Investors need to consider both the pros and cons of buying and holding in an uncertain market.
But have we hit the bottom of the current downturn yet? For those buyers looking for opportunity, they may like to take note of CoreLogic’s head of research, Tim Lawless, who recently pointed to a variety of indicators, including mortgage activity and auction clearance rates, along with a slowing rate of price declines in the biggest capitals, to show that, in his words “housing market conditions may have moved through the worst of the downturn. The good news for home owners is that rate of decline isn’t quite as quick as what we’ve been seeing over previous months”. The latest data from CoreLogic shows that Sydney is currently down 13.9% peak to trough which started Sep 2017 and though this doesn’t apply to all suburbs, it’s a valid indicator of how much traction prices have lost during the last 20 months. Those sellers who bought from 2016 onwards and now HAVE to now sell may well be the ones who have most to risk, for having to take a capital loss, but it’s also important to keep in mind that the overwhelming majority of sellers also go on to buy in the same market, hence making up the losses in a more depressed market. Indeed, we believe that home owner upgraders in the current market hold the upper hand when it comes to taking advantage of lower prices. I was recently interviewed for my thoughts on this in a realestate.com article.
So, with declining falls, an historically low interest rate environment, and decreased sentiment, down markets can be an ideal time to take advantage of softer pricing and it’s vital to realise that down markets don’t last forever. As a buyer, if you can secure credit, conduct your research and take advantage of fewer competitors, you may even pick up a property for up to 15-20% less than what you would have paid 2-3 years ago. As for predicting the very bottom, it may well be an impossible task, but if the right property presents itself now or in the 2019 year, it could be an opportune time before the worm turns again.