With market conditions starting to change, I seem to be getting asked whether now is a good time to buy property a lot.
But I always get asked that question, regardless of what markets are doing, and my answer is nearly always the same.
That’s because my answer is: It is almost always a good time to buy quality assets and it is never a good time to buy poor assets.
After a boom market period, some people will find out that their decision to purchase an inferior property during the heady days of crazy sale prices may prove to be a very costly financial mistake.
That’s because while a rising market tide might lift all ships for a time, like last year, it will always be the quality properties in the best suburbs that will tend to record higher growth over the longer-term, such as the next decade.
Indeed, I often also say that it doesn’t matter what the market is doing today or tomorrow, what matters is what a superior property will be worth in the future, which is a strategy that holds water for both owner occupiers and investors.
The significant entry and exit costs associated with property transactions means real estate can’t be traded like shares, which is why anyone who is looking for short-term returns in real estate are really just speculating or gambling rather than investing.
I have always had a very low level of interest even measuring property prices over a one-year period because of this and have focused on measuring growth over a 10-year period instead.
The strong price growth that was recorded mostly everywhere last year was partly due to the record low cost of money, inflated household disposably income, as well as changing consumer preferences and strong demand for residential property around the nation.
But we also saw low levels of supply creating high levels of competition and FOMO amongst buyers, with many making poor asset selection decisions because of it.
In fact, as buyers scrambled to not “miss out” on the booming market, many appeared to leave their common financial sense at home and often paid well above the odds for a poor-quality property.
Property metrics are already starting to show reducing prices in some city locations, with second-rate areas and inferior dwellings, such as newish unit stock, already starting to post lower prices.
As the CoreLogic Home Value Index for May showed it’s clear that we are past the peak of the massive growth cycle in most major markets around the nation, but those sort of conditions were always destined to be short-term.
We also have the headwinds of moderately rising interest rates, driven by high inflation, plus the rising costs of living.
Affordability constraints had also already started to have an impact on buyer demand, with fewer active in the market. We have also seen an uptick in the supply of listings this year as well.
Of course, all of these factors mean there is less competition and more choice for homebuyers and investors.
Flight to quality
It’s during these types of changing market dynamics that we start to see a flight to quality from purchasers, because they have more properties to select from and fewer buyers to compete against.
Compared to last year, this means that buyers are very well placed to secure a higher quality asset at a better price than they were a mere few months ago.
Over the decades, there has always been above average buyer demand for superior assets in desirable locations such as Sydney’s Eastern Suburbs, Lower North Shore and Inner West, which has resulted in exceptional capital growth.
That’s why it doesn’t matter what the market is doing now – apart from the fact that it is actually a better time to buy now than it was last year if you ask me!
The changing market offers opportunities for buyers to acquire quality assets that have perennial buyer demand, such as family homes or quality low-density units in established urban markets.
Something else I always say is that properties with uniqueness and scarcity have been proven to deliver better long-term growth – as long as buyers have the confidence to proceed and the ability to ignore some of the alarmist media headlines that are circulating at present.
I believe there will be ample opportunities over the next 18 months for savvy homebuyers and investors – who have the courage and the confidence to rise above the negative sentiment, go against the grain, and seize their real estate moment.