The optimal conditions for buying

By Rich Harvey, CEO and Founder www.propertybuyer.com.au

Many investors and home buyers are trying to pick the bottom of the property market and sitting on their hands saying “I’m just waiting to see what happens.”  A buyer is usually better off trying to secure a property now before the general public realises we have hit the bottom, than when the bounce occurs and there is much more competition from other buyers on the upward trend of the cycle.

My message in this update is: “Both your timing and time in the market are important”.  Firstly, getting into the market at a time when prices are softening makes good sense.  Volatile times make ideal conditions for sourcing great deals – vendors more negotiable and realistic and there is less competition from other buyers. Secondly, staying your course during tough times means good returns are there for those with a medium to long term outlook.  Let’s have a look at the positive and negative factors at play in the market and some reasons why now might be an ideal time to buy.

Negative Impacts

Consumer Sentiment
Low consumer sentiment has slowed spending and people generally feel lower confidence about the future. But this keeps other buyers away.

Unemployment
With lower growth comes rising unemployment which will dampen demand for property.

Tighter Credit Conditions
Tighter credit policies of lenders, lower loan to value ratios. Banks all about reducing risk at present. Fewer low-doc lenders. Credit growth has slowed.

Building Approvals
The Housing Industry Association reports that building approvals fell by 2.9% in Dec 2008 following a 10.2% decline in Nov.

House Prices
The ABS showed that established house prices across Australia only fell by 3.3% last year. Compare this against the share market which has seen its values decline by around 50%. Undersupply of property will see house prices rise in the medium term.

Positive Impacts

Interest Rates
Significant cuts in interest rates will help stimulate the economy. Cash rate is likely to end up somewhere between 2.0% and 2.5% by mid 2009.

Home Buyer Grants
Housing demand very strong by first home buyers. Grants are stimulating new developments. Housing affordability growing.

Rental Markets
Vacancy rates in most capital cities is around 1%. Rents expected to rise by around 10% during 2009. Investor yields strongly improving.

Housing Demand
Undersupply housing demand in Australia is running strongly due to increased population growth, limited land releases and high developer charges. The shortage of between 40,000 and 50,000 dwellings per annum is rapidly increasing. This means house prices are likely to recover quickly once economic confidence returns.

International Migration
Last year we welcomed over 213,000 new migrants into Australia - this is helping push population growth pat 1.7%pa. All these new arrivals need a place to stay!

I believe that the next 6 months will provide some of the most optimal conditions for buying a property.  Those that have the fortitude to recognise property market cycles, pick the right property and understand the forces at play in the economy are going to do very well this year.  Savvy investors can do well in any market conditions.  One of the key factors of success is going to be your mindset – the other factors are your skill levels in researching, selecting and negotiating property.

Buy in quality areas with good position and features that will appreciate well over the long term.  Understand your market thoroughly, set specific property search criteria and market price points, have your finances pre-approved and take considered action.