Buying Property

IS THIS THE WORST OR BEST TIME TO BE BUYING?

If one of your goals in life is to earn more than the average salary (over $100k) and retire earlier than the average person (55), then by definition, you probably need to do the opposite to what the rest of the population does.

When it comes to property, being a contrarian means buying when everyone else is sitting on the fence. It makes basic sense – if you’re buying when no one else is buying, you’re bound to have more choice and more likely to buy at a better price than buying at auction, in a boom, when competition is at a peak.

However, doing the opposite to everyone else is very hard from an emotional perspective especially when your friends, family and colleagues question what you’re doing when no one else is doing it.

In 2016 / 2017 the market was rising. Soon after it started, many people thought it was rising too quickly, it wasn’t sustainable and so best not to buy as it was bound to crash. The market peaked at the end of 2017 and then it did start to drop off like it does after every peak.

So in 2018 the excuse was ‘why buy now if the market is falling as it’s bound the be even cheaper tomorrow’. Suddenly everyone was an ‘expert’ and they were all trying to ‘bottom’ the market.

At the same time, we were going through a credit crunch and the Royal Banking Commission and so for some of those that did want to buy or did predict the bottom of the market, they then couldn’t get a mortgage as the banks had changed all of their serviceability calculators.

In reality, the market didn’t really crash, in some places it dipped 10% in 2018 but bounced back to the same level by 2019. If you weren’t a forced seller, you would never have noticed it.

In Feb 2020 the market was just about to take off again and then Covid hit. We had never seen it before and banks were predicting a 10–20% crash and so no one bought and there were a number of panicked sellers. However by mid year the panic eased and the market did in fact slightly increase.

Then the market really kicked in Feb 2021. The banks predicted 5-10% increases which actually resulted in 15–25% depending on where you were around the country. Half way through 2021, many called the market early saying there was no way this growth was sustainable and it was too risky to buy.

The market did peak at the end of 2021 and we woke up in 2022 with less confidence. The talk of interest rates rising has put off many buyers and many buyers love sitting on the fence when an election looms.

So looking back over the last 6 years, there was only a period of 6 months (first half of 2021) when everyone was on the same page and agreed it was the right time to buy. That was the only time when you could be confident to buy and tell your friends, family and colleagues and not receive any negative comments or feedback as everyone was in the market together. That also meant you probably paid over the odds at auction as you were competing with

other emotional buyers, some of whom probably had deeper pockets that yourself.

Whilst you might have made a quick $50k - $100k - $150k jump in capital growth depending on when you bought in 2021, you probably missed out on a lot more than if you had been a contrarian and had bought over that full 6-year period. In Sydney you might have gained $300k, Melbourne $200k and Brisbane $200k.

If the banks, who are in the business 24/7, can’t accurately predict the peaks and troughs of the market, how are you expected to?

I’ve been investing for 30 years and I can’t pick the market and so I don’t even try to. I’ve got a long-term focus and so I invest when:

1. I can get a mortgage from the bank

2. I have a deposit

3. I have enough cash buffer to last me the next few years

4. I can buy a property at a conservative valuation price

The other comment to make about the statistics you see on the graph above is that they are average property prices and so not every property dropped say 10% in 2018. In a good market everything sells. In a down market, good properties still sell, but it’s those that are second grade, are on a main road, don’t have parking, aren’t well presented that don’t sell or sell for a large discount. So if you’re buying A grade properties in blue chip locations, chances are you would have never seen a drop off.

The biggest regret most people have around property is that they didn’t buy more and they didn’t take action. So my biggest tip is to take some action and to do it now. You might cop some grief from your friends, family and colleagues, but are you more interested in what other people think or setting yourself up financially?