The top end of the property market has not recovered the price falls that began last year and the lower end has boomed thanks to first home grants and low interest rates.
Have prices fallen enough? Too far? Will they boom again? Or stay low? Should you buy? Or wait?
Just like the share market, no-one ever knows when the property market has reached its peak or hit rock bottom. And market-by-market, property behaves very differently. The answers are never uniform or simple, but these tips can help make your mind up:
1. WHAT ARE YOUR GOALS
Like most home owners – or prospective home owners – we want our own home to be a sound investment. And whether property is booming or busting, you need to ensure your home will serve your personal financial goals well. If you are a first home owner, your goals are very different to an investor or someone wanting to downsize. Be clear what you need to achieve by owning a property, and separate your lifestyle goals from your financial goals. A first home buyer would be wiser to buy a home likely to grow in value, but one which can easily be paid off quickly so the first home buyer can upgrade to something bigger or better within five years. An investor will want a property with strong rental yields and low maintenance costs. A downsizer needs to sell when the market is achieving good prices for the property they currently hold, but offering bargain prices for something cheaper. Be clear on what you want to do with a home.
2. YES FOLKS, IT TAKES RESEARCH
Since property markets behave differently from suburb to suburb and even street to street, it’s vital you know what the market is really doing. If you read that Australian house prices have fallen 4%, that may well be true but house prices in your street may have risen by 15% or even fallen by 25%. And you won’t know until you find out what the recent home sales data is showing. OnTheHouse.com.au has research you can subscribe to that will help you work out exactly what’s going on in your market.
3. LOWER HOUSE PRICES AREN’T ALWAYS A BARGAIN
Just because prices may have fallen in some markets, doesn’t instantly make them good value. Lower house prices are not automatically an investment opportunity. Yes, it CAN be a good opportunity but house prices that are lower than they were a year ago may not automatically return to growth. Most house price falls are a correction to an overvalued market. Your research should tell you whether house prices are falling or rising – and then you need to use your nouse to work out whether that presents an opportunity given your own personal circumstances. For example, if you can buy a house with a mortgage and pay only a little bit more than you would pay in rent, then that’s a good opportunity. If you’re thinking of taking on a large mortgage based on paying it back with higher capital gains in a short period of time, you need to think again.
4. AND RISING PRICES DON’T KEEP GOING UP
So how do you know whether a property is worth buying at a given price? Property values are a difficult thing to understand, as they typically stagnate (or even fall) during some phases of the property cycle but can also rapidly rise over a short time period. Just because prices have been rising isn’t a signal that they will always rise. In fact, it can be a sign that maximum price growth has already occurred and is likely to ease off.
5. CHECK VALUE FOR YOUR CIRCUMSTANCE
Residential property is a long term investment, with some experts predicting it takes more than 17 years to “break even” by owning your own home. Other experts are saying our previous booms in Australian house prices are “once-in-a-generation” and unlikely to happen again. Meanwhile other economists are saying Australia has a massive undersupply of housing and strong population growth, which will underpin further price growth. So who can you believe? None of them. Only you can do your research and work out which buying, selling or waiting decision best suits your circumstances. Downsizers will always be able to do well, regardless of market conditions as they will be able to access capital regardless of whether the market is rising or falling. First home buyers prepared to stay put for the long haul and pay down their mortgage will always do well. And second and third home buyers need to weigh up lifestyle considerations with taking on more debt.
6. IT’S NEVER A SIMPLE EQUATION
If anyone could have anticipated the property boom Australia has experienced in the last decade, we could all have been millionaires sipping cocktails around the pool at some sea-change destination, bought dirt cheap, way before ``sea-change'' was even invented. If high-powered bankers and property experts are confused about the state of the property market, how is the average Joe supposed to know whether it is the right time to buy or sell? First home buyers may be tempted to wait to enter the market, hoping prices will come back a bit further. On the other hand, empty nesters may be weighing up whether to sell up their big home now before prices fall and they can’t pocket as much profit from the sale. In the meantime, upgraders – who are one of the biggest segments of the residential property market – may be thinking of ways to outsmart the market such as selling their house and renting for a year before taking on a bigger mortgage for a bigger house. Home buyers shouldn’t really care if the paper value of their house has gone up or down, they are living there and they can’t make any money out of the house until they sell it. Home buyers need to be able to withstand circumstances like divorce, illness, job loss or interest rate rises. The only real losers in a property market are people who are forced to sell - and that happens regardless of booms or busts.
source onthehouse © copyright 2009
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