The Upsizer Advantage - September 2018
September 17, 2018 / Written by Rich Harvey
For most property owners in Sydney and Melbourne, the idea of up sizing a home anytime during the past five years seemed impossible.
Trying to compete in these very hot markets would’ve required significant capital in reserve, plenty of patience and a willingness to dig deep, close your eyes and agree to handover uncomfortably more dollars than seemed sensible.
But 2018 has been redefining the rules around up sizing.
Smart players are starting to ante up and get in on the game because upsizers are in a property market sweet-spot right now.
A price retreat presents the perfect opportunity for upsizers to take advantage and buy the sort of home they thought out of reach just 12-months ago.
Time to shine
Take a look at the past six-to-nine months of data from our major capital cities. See those red numbers in the ‘percentage growth’ column where the black numbers used to be?
This may look strange to anyone who’s only been monitoring these markets for a decade or so, but the cold hard truth is the current value retraction is a sign we are returning to a more sustainable, long-term state of affairs.
The story is playing out in other metrics as well – whether it’s a drop in auction clearance rates or finance figures, or a blow-out in the days on market and vendor discounting, the picture is the same – fewer buyers and less activity means we are finding a new equilibrium.
The only major segment of the market where we’ve seen an uptick in activity is first home buyers, with growing confidence as their competition retreats.
But they’re not the only potential buyers who should be leaping on the opportunities – because now is a time to shine for those who’ve outgrown their current abode.
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There are a few reasons why upsizers have the upper hand in this softer market.
Firstly – the laws of supply and demand mean you now have more bargaining power over sellers. The pendulum has swung back in your favour and the opportunity to pay less is growing.
If someone wants to sell, they’ll have to come to the table so, frankly, your timing is perfect.
Vendor expectations on prices typically take about six months to catch up to the fact that demand has dropped – and we are now over nine months into this declining market, so the lag effect has definitely kicked in.
You can also allow for the FONGO factor which results in a seller’s tendency to ‘over correct’ their asking dollars prior to prices settling in properly.
What’s FONGO? Well, sellers have had nine months to come to a realistic realisation – but for many they suddenly become overwhelmed and their feelings of FOMO – fear of missing out, get replaced by feelings of FONGO – fear of not getting out.
This can result in knee-jerk discounts that overcompensate for the dropping demand. That means great opportunities for those who use a buyers’ agent. If you’ve got access to off-market deals from vendors who want a fast, painless sale, you will be able to purchase now at a significant discount – particularly when compared to what values might be in 12-months’ time when good sense has returned and the stormy waters have calmed.
Upsizers also have an advantage over investor too, because timing the market is less important to changeover traders. In fact, you are better off selling to upsize in a declining market than trying to get in on a rising market, because you are trading in the same market. What you potentially lose on the sale, you make up for on the buy side.
Falling markets let you get more bang for your buck with regard to location.
One of the general foundations of property economics is that the further you head from town – or major services, facilities and infrastructure – the less you’ll have to pay for real estate.
This means many buyers with a fixed budget in a strong market decide to compromise on location.
Now, with less competition, your choice is not necessarily to pay less, but to get more. Suburbs that you thought were once out of reach are now back in play, as sellers come to terms with the fact that they’ll have to lower their expectations.
Finally – upsizers are one of the best positioned demographics to take advantage of what has happened over the past decade with property prices.
By their nature, upsizers have outgrown their current holding. This usually means they acquired their property some five to ten years ago and but they’ve now outgrown the space.
Well, as we’ve just discussed, the last decade has seen some of the most exceptional price growth in recent memory. Almost by some fortunate accident of fiscal fate, upgraders now find themselves in an extraordinarily good position when it comes to equity.
They are quite literally cashed up (or at least “equitied” up) and ready to draw on their good fortune. Some may even be able to flip their current property from ‘home’ to ‘investment’, and then draw down the equity to cover deposit and debt on their new home.
Stick to the fundamentals
Just because there are good deals to be found, doesn’t mean you should disregard important considerations that underpin every investment. Buy with the right fundamentals in mind that suit you and your lifestyle, but also future long-term growth potential.
One key to success is ensuring you have an independent, well-resourced buyers’ agent in your corner who can draw on their excellent industry networks to land you the perfect next home.
Want help finding the ideal property? Please contact my friendly team of Buyers Agents who would be glad to lend a hand. Tell us your property brief or call us on 1300 655 615 today.