There’s lots of talk of property values falling and I’ve heard stories of vendors dropping prices by $100,000 or more.
But don’t let that fool you into thinking that now is the right time to get on the property ladder.
Home affordability is still well out of kilter with wages and salaries. The drop we’ve seen in property prices – which is mostly anecdotal – is only a blip. And even if prices have come back a bit, rents have not risen enough to make property investments pay their own way.
Friends of mine were considering buying a do-up as an investment. The property was on the market for $675,000. But when they did the numbers, as all good investors should do, they realised that the price would need to drop to $500,000 before the investment became profitable.
Mortgage interest rates are still several percent higher than they have been in recent years and thanks to the credit crunch, mortgages are getting much harder to come by.
There are plenty of arguments that you can make money in any market as an investor and that it’s better to have your own home than not. But you’re not going to lose money by not acting now. Patience is a virtue and if you can wait a year or two to buy your next home or investment property you may want to.
Anyone who thinks they need to ‘get in quick’ whilst property prices are cheap, or other similar tosh, ought to read Kieran Trass’s book Grow Rich With The Property Cycle
Trass’s argument is that the property cycle goes around clockwise through boom, slump and recovery phases. The entire circuit can take 7-10 years. So if we’re at the very beginning of a slump phase now, it could take a couple of years to hit the bottom of the cycle and starts recovering.
Just yesterday I was having coffee with a mortgage broker who had been trying to convince a customer not to buy an investment property– which was selling for $100,000 less than the registered valuation. All he could see was the dollar signs in his eyes at the perceived “bargain”. His mortgage broker (who stood to lose her commission if she convinced him not to buy – which shows how honest she was) couldn’t get through to him that the property may well be worth even less than he paid for it in a year or two’s time.
Throughout the cycle, says Trass fear and greed are motivating factors. During the boom and early into the slump greed is in the fore. Then towards the end of the slump and through the recovery fear takes over.
As the market slumps further it will become easier to negotiate not only the price, but other factors related to property – such as settlement dates and also furniture and furnishings that you may want left behind.
Are you looking to buy property? If so, why?