Is now the time to buy property?
This is a question we are being asked by our clients on a regular basis in response to significantly changed property market conditions.
Our answer is quite clear…
NOW IS A GREAT TIME TO BUY PROPERTY providing you are selective in what you buy and you only buy quality.
We are now seeing some excellent opportunities that meet our strict selection criteria, both on and off market. Importantly, they are correctly priced to reflect the current downturn.
Many prospective purchasers remain concerned that prices will reduce further and it is therefore better to wait a little longer before re-entering the market. Our response to this is yes, it is possible that prices could fall a little further but no-one can say for certain that this will be the case nor can anyone predict by how much. In the meantime, holding back may result in missing out on an outstanding opportunity that simply won’t be available in a stronger market and certainly not at the price at which it can be purchased today.
History tells us that property downturns are relatively short-lived and when recovery occurs it is both quick and emphatic. Given that the typical home in Australia is now owned for some 10.5 years, purchasers in today’s market have before them one of those rare opportunities in the property cycle to buy at discounted prices with the potential to benefit from strong capital gain over the ensuing decade.
The graph below shows the trend in Melbourne median house prices in the period 1966 to 2016. It demonstrates clearly the resilience of property to withstand the most severe of financial downturns. It also maps the most significant economic events to hit the Australian economy over that time, the resultant short-term impact on property prices and the ensuing sharp, somewhat exponential, recoveries.
What this graph tells us is that losses in value are generally very quickly recouped following a downturn and that holding back for too long can often limit the opportunity to benefit from significant future capital gain. This was particularly evident at the time of the 2008 Global Financial Crisis. The dramatic drop in median house prices was fully recovered within 18 months of the beginning of the GFC. This period was then followed by a sustained period of strong price growth.
The current downturn in the property market has been triggered in part by a major turnaround in the lending policies of the major banks. Stricter criteria now applies, loan to value ratios have been reduced, interest only loans are being phased out and bridging finance has become more difficult to obtain.
As a result of these changes to lending policies, there are now several steps you must take before considering your next purchase:
1. Ask your bank or broker for an estimate of how much they would be prepared to advance?
2. Obtain written pre-approval for the proposed loan.
3. If you are thinking of selling your home to upgrade and want to purchase before you sell, check with your bank that bridging finance will be available to you. This may be necessary should it take longer than anticipated to sell your existing home. If bridging finance is not available, you will need to sell before you buy.
4. Establish what your existing home is worth and take 10% off that value to determine how much you can afford to pay for your next home. Better to be conservative than optimistic. Windfalls are a cause for celebration but shortfalls are a cause for castigation.
Having ticked off on items 1 to 4, it’s time to decide what to buy, where to buy and when to buy.
Not all property comes with a “buy” recommendation from Bidpro. Some property we recommend you simply “don’t buy”. It is important to seek independent advice…and that’s what we are here for.
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If you would like to learn more about the services we offer, please contact Shane Heffernan
0418 511 390