Why buy property this spring

8th Aug 2018By: John McGrath

We’re a few weeks out from the traditionally busy Spring season when more property will come onto the market, giving buyers more choice.

The question is, will Sydney and Melbourne buyers take advantage of this Spring or will some people continue to hold off purchasing in the hope that prices might fall further?

In both markets, it is clear that buyers are being more cautious. They have the opportunity to take their time as competition is lower, stock is higher and vendors are (or should be) open to negotiation.

It’s tempting to wait because after a five-year sellers’ market, buyers finally have some control back and they want to make the most of it. But realistically, I don’t think we have much more to go in terms of price correction.

New CoreLogic figures released last week show Sydney property values overall (houses and apartments combined) have come back 5.4% over the past 12 months. Melbourne prices have pulled back -0.5%.

History tells us that we shouldn’t expect a correction of more than 8-10%.

CoreLogic analysed every period of decline in Sydney since 1980 and found the biggest price loss was -11.6% over 28 months in the correction of 1988-91.

In Melbourne, the biggest price loss was -9.4% over 12 months in the correction of 2008-09.

If you’re looking to buy a first home, upgrade your family residence or purchase a new investment, you should have at least a 10-year horizon in mind and by that time, whatever you pay today will look cheap.

The best time to buy has nothing to do with the market – it’s when you can comfortably afford it and want to do it.

There will be a couple of distinct advantages for buyers this Spring:

  • There will be more homes for sale, as is always the case in Spring but it will come on top of already elevated levels of stock.  CoreLogic figures for Sydney show stock for sale in July was 21.7% higher than the same time last year and the greatest volume for sale since 2012. In Melbourne, stock in July was 10.5% higher than last year and the greatest volume since 2014
  • You’ll likely face less competition, not just because some buyers have left the market but also because so many buyers are struggling to get finance these days. This is having a material impact on sale prices because it is reducing competition at auction

Also bear in mind that today’s low interest rates are a major benefit for buyers but they won’t last forever.

Your loan is at its most expensive in the first five years when the bulk of your repayments go towards interest.

Spring buyers should use today’s low rates to make extra repayments and get a serious jumpstart on paying down debt.

Your loan is a long-term liability – usually 25 or 30 years; and during that time rates will return to their long term average of 7-7.5%, which could make tens of thousands of dollars difference to your loan repayments.

Maximising the number of years on cheap rates within the 25-30 year lifespan of your loan is as worthy a goal as not paying too much for your next property.  I encourage you to keep it in mind!

Published: Tuesday, August 07, 2018