Are You Waiting to Pick the Bottom of the Property Market?
With property prices falling and buyer confidence low, there is a question we are hearing more often:
Should I wait for the market to fall further before I buy?
It is an understandable strategy.
If you knew a property worth $1 million today would be available for $950,000 in six months, of course you would wait.
The problem is that markets don't tell us in advance where the bottom will be.
Our friend Gavin from Blue Wealth Property recently wrote about this very issue. His point was simple: when we look back at previous property cycles on a completed chart, the turning points seem obvious.
But they weren't obvious to the people making decisions at the time.
They were simply periods of uncertainty.
That got us thinking about what buyers should actually be focusing on today.
The bottom is usually easier to see after it has passed
Looking backwards makes market timing appear deceptively simple.
We can look at a property chart today and point to the exact month prices peaked, the point they bottomed and the moment the recovery began.
But buyers living through that period didn't have the rest of the chart.
The same applies today.
Prices may fall further.
They may stabilise.
Different suburbs and property types may reach their lows at completely different times.
Waiting therefore doesn't remove risk.
It simply changes the risk you are taking.
If you buy today, there is a possibility the property becomes cheaper in the short term.
If you wait, there is a possibility the market starts recovering before the price you were hoping for ever arrives.
By the time everyone agrees that the bottom has passed, buyer confidence may already be returning.
And confidence often brings competition with it.
A slower market can give buyers something valuable: negotiating power
A falling market naturally makes buyers nervous.
But it can also create conditions that are difficult to find when property prices are rising quickly.
Fewer buyers can mean:
- less competition at open homes
- properties spending longer on the market
- vendors becoming more willing to negotiate
- more choice
- more time to complete your due diligence
- and the ability to walk away without feeling that another buyer will immediately take your place
This doesn't mean every property is suddenly good value.
As Gavin points out in the Blue Wealth article, a good price still needs to be attached to a good asset.
That distinction is important.
A property isn't automatically a good purchase just because it has fallen 5% or 10%.
You still need to consider the location, demand, property type, comparable sales, future prospects and, for investors, factors such as rental demand and yield.
But if you can negotiate a good property at a price that already makes sense to you, waiting for the final few percentage points of the downturn may not necessarily improve the overall decision.
You don't need to buy at the bottom for the purchase to work
This may be the most important point.
Imagine you buy a quality property today and its value falls another 3% or 4% over the next six months.
Did you make a bad decision?
Not necessarily.
If you bought at a reasonable price, can comfortably afford the repayments and intend to own the property for many years, a small short-term movement may eventually become relatively insignificant.
For an investor, the same principle applies.
Entry price is important, but it is only one part of the investment.
The quality of the property, rental return, supply, demand, location, financing structure and how long you intend to hold the asset all matter.
As Gavin put it in his article, there is an enormous range between buying at the top of the market and perfectly identifying the bottom.
A good property bought at a good enough price can still be a very good decision.
So, should you wait?
Possibly.
If the numbers don't work today, waiting can absolutely be the right decision.
If you don't have the deposit, repayments would stretch your budget or you haven't found the right property, there is no reason to force a purchase simply because prices have fallen.
But there is a difference between waiting because the numbers don't work and waiting because you are trying to perfectly predict the market.
One is financial planning.
The other is market timing.
And market timing requires you to get two decisions right:
when to wait and when to come back in.
That second decision can be harder than it sounds.
Focus on what you can know today
None of us knows exactly where property prices will be six or twelve months from now.
But there are things you can assess today.
You can understand:
- what you can comfortably afford
- how much you can borrow
- what your repayments will look like
- whether a property represents reasonable value
- whether you have an appropriate financial buffer
- and whether buying fits your longer-term plans
At Kredi, we believe those questions are more useful than trying to perfectly predict the next move in the property market.
You don't necessarily need the bottom of the market.
You need the right property, at a price that works, with a loan you can comfortably afford.
And sometimes a market where everyone else is waiting can be exactly when those opportunities begin to appear.
This article was inspired in part by a recent piece from our friend Gavin at Blue Wealth Property on the challenges of trying to identify the exact bottom of a property cycle.