How Do You Pick The Property Market?

Can you really tell whether the property market is going to rise or fall?

‘Buy low and sell high.’ It’s the oldest investing cliche in the world and one that many people try to apply to housing stock too. But how can you tell whether the property market is rising or falling and should you really even try to pick it?

Homeowners who try to time the market

As real estate agents, we see a lot of people trying to time the market. Most usually, this starts with a surging market and a property owner who’s anxious that the boom won’t last and that their home can’t possibly be worth as much as people are willing to pay for it. This leads them to then sell their home and exit the market, often to rent momentarily. They do this assuming that prices will fall and they can get back into it in a stronger position.

Unfortunately, however, it doesn’t always work out this way.

In our experience, the market often continues to rise and the same property owner finds that they can no longer afford what they once could have. They end up having to compromise - buying back into something less than they hoped or having to take out a bigger mortgage. Some of them find themselves locked out of their ideal property market altogether.

The problem with trying to time the market

The simple fact is that no one can really predict the property market with any great certainty. That’s because prices rise and fall depending on many factors, some of which simply can’t be foreseen.

For example, in late 2019 and early 2020, property prices in Sydney were charging along. In February 2020, Domain forecast Sydney prices would continue to rise 10% over the remainder of the year. SQM was even bolder, forecasting growth as high as 16% over 12 months. Then, of course, COVID struck and the market went quiet. Many commentators revised their forecasts altogether. CBA famously predicted that house prices could fall by as much as -32% and Westpac put forward a ‘base case scenario of a -15% fall’.

Of course, with the benefit of hindsight, we can see that none of this happened. Sydney’s median property prices did fall - but by nowhere near as much as predicted. And, by the end of 2020, they were back to where they had been before the pandemic struck. That, of course, was just before they then shot up 12.5% in just five months.

Those who sold their homes early on in the pandemic, expecting a crash would have found themselves in a worse position.

The best approach to buying and selling a property

For anyone buying and selling, we generally recommend trying to do so in the same market conditions - or as close to the same market conditions as possible. This takes away the risk that prices could get away from you or that you could be shortchanging yourself.

Of course, there is always the question of whether to buy or sell first. And generally, our advice here can change depending on market conditions. With listings at lower than usual levels right now, we generally advise people to buy first and sell second - with the proviso that they try to negotiate a longer than usual settlement period. This way you can often time your settlements and at least make sure you have somewhere to go.

That said, there are different markets in which it makes sense to buy or sell. For instance, a rising market can be a good time to downsize, while a flat market can be a good time to upsize. However, again, buying and selling as close together as possible helps minimise the risk that you will be worse off.

Taking a long term view

While there are short-term property cycles it also pays to remember that in the long run, property prices in Sydney have tended to go up. For instance, in 2010, the Sydney market experienced a boom before prices started to fall over the following year. Buyers who had been concerned about paying too much need not have worried though - according to ABS data, that same property would have been worth over 80% more a decade later, despite any short-term pain.

In other words, while timing the market may sound like a good idea, the truth is that overpaying a little doesn’t matter too much in the long run. Instead of trying to time your sale and purchase to perfection, you’re better off focusing on securing a home that’s right for you.

Want more?

If you’d like advice on buying or selling in today’s market, get in touch.

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