How to make money on property during a 'down' market
"How is the market?" is the most common question I get from people. I have been selling property since 1999 and I have always responded with, "It's good!" I have a reason for this initial response and I do elaborate but what people are really wanting to find out is some inside intel. They want to know what the market will do next so they can plan their next move with property. Large sums of money can materialise almost overnight when the prices are rising and just as easily they can vanish when the prices fall. "Prices are never going to go down!" is another comment I hear pretty frequently too. These people were clearly not tuned in to the market when things began to change in the middle of 2010 after we had seen median house prices climb by almost 40% in the preceding 2 years. It seemed like the market would continue to increase indefinitely. What we ended up seeing was a period of price stagnation from late 2010, and then prices began to fall. Almost every quarter saw price drops and the prices did not recover beyond their late 2010 level (of approx $560,000) until 3 years later when we began to see life returning to the property market. Late 2007 also saw the beginning of price falls after a prior period of strong growth which took 2 years to regain the same median price level.
People generally assume that it's good when the market is strong and bad when it is weak. This may be because of the outside economic conditions which have an effect on the prices, also impact our financial lives and our perceptions of what a 'down' market is. I am talking about elements such as employment, CPI, interest rates, the global economy and it's financial crises and such. Whilst these elements do have a bearing on the property market, we can use the movement in the market to succeed in building our wealth.
Most people do things the wrong way around and end up riding the market like a rollercoaster, absorbing the ups and the downs. People do what they see other people doing and they usually sell when the market is 'good' yet prices are rising and don't want to buy when the market is 'bad' yet at this time great opportunities exist. If this sounds like an experience you have had, I would like to challenge your thinking.
A down market is when smart people make their money. The profit is in the buying, if you take my meaning. If you can afford to buy when no-one else is buying, what a great opportunity it will be. Like going shopping after the apocalypse when there is not another customer in sight. To put this in to context, those that bought a house in Melbourne in November 2011 grew their investment by 40% in 4 short years. People laughed and thought they were mad buying at this time when everyone was selling up like crazy but who had the last laugh in hindsight?
Thinking about it, what is a 'down' market anyway? What does that even mean? Looking back today in 2017, any period in the past 6 years could be called a 'down' market because the price are up since then. It would have been better to have bought then instead of now because prices were down compared with now. Whilst large sums of money can be made by speculating the ups and downs of the market by getting on or off the rollercoaster at the right time, remember that for most people property ownership is a 'long game', the old adage remains true, "It's not so much about timing the market, it's about time in the market."
So what is the next trend going to be with property prices? Is this long growth period going to be one that we look back upon and wish we had sold? Or will the market grow in a way that we have never seen before and surprise us all. Historically it has been cyclical rather than linear, with prices moving up and down allowing for opportunities to emerge to buy or sell at the opportune time. At the time of writing this article, the market dynamics are as follows; auction clearances have been declining for the past few months from a peak of 82% to the now 72%, this is despite low levels of stock on the market and record low interest rates which is a dynamic that usually boosts buyer activity and property prices. Lenders have begun to tighten their lending policies and interest only interest rates are going up by around 0.5% in the next month. In addition we are expecting a higher number of properties on the market in Spring as we do each year adding further supply meaning greater choice for buyers who will no doubt become more selective. These elements are forecasted to combine in to some softer market conditions ahead meaning that some excellent opportunities to transact are now emerging for some people interested in attempting to pinpoint the optimal time to transact.
So with all this in mind, I always say the market is 'good'. Because opportunities will always exist at any moment for those who understand it. They exist for those who understand that property can be a long game and also that there will sometimes be a long wait of several years for prices to recover after a fall. We can see from the chart that in Melbourne owning property over the long term has the potential to grow our wealth but we can't just buy every property we see. Naturally our capacity to support the holding costs involved must be taken in to account and depend fully on our own personal finances and where we want our money. This therefore must be the final determinant of which properties we decide to work towards. So in your opinion, is it ever a 'down' market or is it more of an opportunistic market? You can decide.
For all real estate related information or advice, contact the author Simon Wendt, Licensed Estate Agent at Hockingstuart Mentone on 0407 040 706.