Without a doubt, the number one question we’re asked on a daily basis is, “Is now the right time to buy?”
Overall, we prioritise a range of factors when it comes to buying a high-performance investment property that go far beyond timing. Considerations like location, asset selection, real estate fundamentals and owner occupier resale potential should always form the basis of any purchasing decision, particularly given property is a long-term strategy.
At the moment, though, market conditions – especially timing – are factors that are difficult to ignore.
The bespoke nature of our service at Milk Chocolate means we don’t apply a “one size fits all” approach to our investment strategies. Each client’s personal circumstances, financial position and objectives dictate every facet of their bespoke Game Plan and/or purchase, including location.
This places our business in a pretty unique position: at any one time, we have a highly in-depth level of exposure and subsequent understanding of a broad range of marketplaces across the country. What this translates to is real-time observations of the key indicators that ultimately influence house prices – primarily, buyer behaviour, listing volumes and available asset quality.
Plus, we can access all of this in advance of the published data that’s made available to the general market. So, when we see mainstream articles that mirror and affirm our preliminary observations, we can’t help but get a little eager to chime in with our own two cents.
Recently, Money.com commissioned a survey of an independent panel of over 1,000 Australians to discover whether homebuyers intend to purchase a property at a lower price point and the actions they’ll take to reduce the cost. When participants were asked whether they would actively change their property-buying behaviours or criteria to ensure they pay less for a property, 79% respondents said yes.
This response is unlikely to surprise many of us. In a general sense, it’s the type of sentiment we would expect in any normal purchasing environment – be it property, clothing or anything else. After all, Australians tend to place importance on purchasing something in the most cost-effective manner.
But the response that was of most interest to us was the strategy survey respondents were planning to implement in order to achieve their objective of purchasing at a lower price point. Interestingly, this response is a sound reflection of what our business is witnessing on the ground in effectively every state and territory, and the one key outcome that shines a light on the timing of a purchase.
If you were in the market to buy a property, would you do any of the following to help you purchase at a lower price point?
Out of the 1,003 individuals who were surveyed (who also happen to match the age and geographical spread of the Australian population), the overwhelming majority (43%) of respondents were opting to “wait a few months” in order to purchase at a lower price point.
The above chart provides the outcomes at a state/territory level and shows a relatively consistent spread of results: 41% of respondents in NSW and Victoria would choose to delay, while 56% of ACT locals have decided waiting will produce a more affordable outcome.
So, what does all of this have to do with timing your purchase? To answer this question, the best place to start is ensuring we all have an understanding of the basic principle that real estate is like any other commodity market: it’s driven by supply and demand.
Currently, we haven’t noted substantial reductions in listing volume (supply). However, over recent months (albeit with slightly different time frames depending on location), each marketplace across the country has seen a substantial decrease in the level of demand for property.
This has ultimately led to, or is leading to, a skew in the supply vs demand ratio – conditional on which city you’re purchasing in. There is now less or more neutral demand than supply, which is in stark contrast to the last 2.5 years.
Why this study is so interesting is that it provides an insight or explanation for the shift in the market's appetite for purchasing property. Without doubt, there are financial considerations associated with tighter lending and the obvious interest rate rises. But in our opinion, blaming the financial factors alone for slowing down the buying public is only looking at the smallest piece of the puzzle.
Our team has observed that those aforementioned monetary influences are creating an emotional response from the marketplace, demonstrated by the fact that the majority of respondents in this survey are going to take the “wait and see” approach to their next purchase. Clearly, their intention is still to buy property.
There’s a range of other indicators that support this concept, a lot of which we’ve covered in previous articles. However, consider the fact that before the first interest rate rise in May of this year, it had been 12 years since Australians witnessed increasing interest rates. This means there’s a very strong chance that a large proportion of that existing buyer pool are experiencing higher loan repayments and interest charges for the first time ever.
Combine this with the speed and intensity of rate increases and it’s little wonder the majority of buyers have entered a state of interest rate shock. When you then compound that experience with the consistent forecast of declining property values, it’s unsurprising that many of the buying public have placed their plans on hold to gain a little bit more clarity and possibly a cheaper buy.
This is where it gets interesting, though. An emotional response can quickly change course, because as humans, most of us adhere to a herd mentality. With rates forecasted to land in and around the historic average for Australian interest rates (6%), it's unlikely going to take much social proof for that 43% of the “waiting” demand pool to dip their toes back in the water. Adding close to half of the buying population back into the mix has a major effect on that good old supply and demand ratio.
All of this is to say, if you’re taking a long-term approach to your property purchase, timing doesn’t really matter. Asset selection and the other key fundamentals are always the most important purchasing considerations, but right now, demand may well be at its lowest levels in most markets.
This means waiting could mean you’re swimming in a crowded pool again – sooner rather than later. There is a famous observation from Warren Buffett that sums up this idea quite nicely: “Be fearful when others are greedy, and greedy when others are fearful.”
If you’re looking to purchase an investment property, expand your existing portfolio or find a family home, get in touch to discover how Brad and the Milk Chocolate team can help.
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