Property prices in Sydney CBD are experiencing a correction. We’ve seen a decrease in property prices, of that there is now little doubt. The media would have you believe that this means the end of the world (whatever sells newspapers, right?). Admittedly, it’s not GREAT! However, there are still opportunities to improve your position in a falling market, you just need to play your cards right. Having a detailed understanding and acceptance of the reality of the market in its current state is the best way to be prepared to act.
1. First Home Buyers
During the property market boom (notably from late 2014 – end of 2017) first home buyers were, for the most part, shut out of the property market. There was a point where baby boomers wondered if their kids would ever be able to afford to get their ‘foot in the door’ as property owners in Sydney. Now the tables have turned and with a lot less competition between investors, overseas buyers and first home buyers. Now is the best buying opportunity for first home buyers since the GFC in 2008. Sure, property prices were lower in 2008 but mortgage rates were significantly higher.
At least now, first home buyers have a choice if they want to enter into the Sydney market, whereas before they were almost completely locked out. First home buyers who are in a position to buy, now have the upper hand and can take advantage of falling property prices.
2. Upgrading in a falling market
The best time for investors to upgrade their property is when the price gap between your existing property and your goal property begins to narrow.
During the boom, your $1 million home went to $1.35 million whilst the proposed $2 million purchase shot up to $2.7 million. Now the price difference between neighbouring tiers of properties is smaller, creating an opportunity to sell your current place and upgrade. Be careful of the risks involved with buying before selling though.
3. Better Mortgage Deals
Aa lower purchase price means you pay the bank less each month in mortgage repayments. Most property booms are quelled by the RBA raising interest rates. This downturn has been manufactured by tighter credit conditions. Interest rates are at near record lows and look set to remain there for some time to come. Therefore, those that qualify for a home loan can buy a home for less than they would have paid 12 months ago and still enjoy competitive mortgage rates. The real challenge involved in today’s market is getting the bank to offer you a mortgage in the first place.
One of the biggest frustrations during the boom was the sheer lack of stock on the market, this combined with a fast turnover meant the property market was highly competitive. These factors lead to some buyers, during the boom, securing a property that they weren’t 100% sure about because if they didn’t someone else was waiting to snap it up. Winning the bidding war was a challenge in itself, with this suitability of the property becoming somewhat secondary.
In today’s market, there is a wide range of dwellings up for grabs. Buyers also have the privilege of taking their time to ensure the property ticks all the boxes before making an offer. This combined with steadily falling prices and very reasonable interest rates is a home buyers paradise!
5. Speculators are gone
For those of you who aren’t sure what we mean here; A property speculator is someone who buys and/or holds property based on the belief that the capital value will increase. Speculators had a major part to play in driving prices up beyond reason during the boom. These speculators splashing their cash around, shut out your everyday home buyer, making property prices unreachable. For now, there’s no sign of these mysterious characters in the Sydney market, they WILL be back but right now the ball is back the everyday buyer’s court.
Home buyers will buy, even when prices are falling – we all need to live somewhere. A property boom starts with investors and ends with speculators. A property correction starts with speculators and ends with investors. Once the market bottom outs, speculators will be back. Markets run on fear and greed. Once the fear is done, the greed will return. Some buyers are waiting for the phone call or the email that announces the bottom of the market. Alas, the town hall bells won’t chime and there won’t be a public service announcement to call the official bottom of the property market.
If you are looking for a home that will see you through the next 10 or 20 years, there will be both periods of price growth and price decline. The property market is cyclic, there’s no doubt. Buying in a falling market means you are closer to the next market upswing than if you had bought during a boom. Economists continually assess the housing market as though it were exclusively an investment. Therefore, they have been largely wrong for 20 years in calling the property market.
We hope this information has been useful. Best of luck with your investment adventure!!