While it's tempting to try to time the
market to maximise your profits, this strategy is often a poor choice for
property investors.
Instead, focusing on "time in the
market" is a much more effective approach because, as we know, the market
works in cycles.
The issue is that no one really knows,
not even the experts, how long each cycle will last because it depends on a
huge number of variables including economic conditions as well as human
behaviour – and we all know how hard that is to predict.
Instead of timing the market,
sophisticated property investors understand that they need to focus their
efforts on buying an investment-grade property, in an A-grade location
at the time which suits them.
The important part of that statement is
that they always buy "investment grade” properties in good locations because
these are the types of properties that will outperform in the long run.
Smart investors don’t wait around for
the lowest prices or for a downturn, they buy when they have their finance
ready.
It can be tempting, especially in a
downturn like we’re currently experiencing, to hang on and wait for prices to
lower further with the idea that you’ll get more ‘bang for your buck’.
But the reality is, investment-grade
properties in good locations are more stable than in other markets and the
point of the cycle is less important if you’re committed to holding the
property long-term.
This means that it doesn’t really
matter that much when you enter the market if the value of your property
will double in value over a 10-year period as it has over the last 40 years.
What’s important is that you hold the
property for long enough to see compound growth.
This strategy would also help you to
ride out any temporary market fluctuations.
That way, if it comes time to sell down
some of your assets when you reach retirement, or whenever is the right time
for you, you will have created wealth from your portfolio's compounding equity
over the decades.
The risk is that by waiting for the
‘perfect time’, property investors risk missing out on time in the market which
translates into money earned, or they could even miss out on investment grade
opportunities altogether.
Domain Chief of Research &
Economics Dr Nicola Powell agrees and advises that potential buyers
keep calm and carry on.
"I really believe, having pored over 30
years of housing market data, that housing markets are cyclical, and you go
through lots of periods where prices rise and then fall,” she says.
"When you’re purchasing a property,
it’s for a long-term investment and you are going to ride multiple property
cycles, and that’s how you build financial wealth. So if I would give any
advice, it would be to buy when it’s right for you. Housing markets are complex
and often impossible to predict.”
Ray White Group chief economist Nerida
Conisbee echos the same concept, saying that many people have missed out on
buying homes after waiting for a price crash which never came.
Instead, prices moved in the opposite
direction and left many of them high and dry, and now unable to buy the
properties they could have back then.
"The best time to buy is always when
you are personally and financially ready,” she says.
"We generally don’t advise people to
wait for interest rates because it’s so easy then to become unstuck when they
don’t change for a while, and you’re left in a fairly negative position.
"It’s better to buy when you’re
ready to. And if you buy now, you’ll still benefit later when interest rates do
come down, as well as from any price rises in the meantime.”
While most commentators believe that
interest rates will be cut later this year, improved affordability that follows
will encourage more buyers into the market and quickly push prices higher.
That means there’ll be more competition
for properties and prices may well go up further as a result.
So if you have the financial capacity
to buy now, and you’ve seen a property you like and can afford, then I’d
suggest you do that sooner rather than later.
We’re probably seeing another six to
eight months where rates will be on hold, with the first-rate cut early in the
second half of this year.
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Jason Gwerder
Tuesday, 5 March 2024
