Picking the right time to buy is crucial
LIKE every other investment, residential property follows a cycle.
Picking the best time to buy and sell to maximise profit often depends on understanding where you are in a cycle.
Conventional wisdom is that residential property follows a seven to 10-year cycle between peaks.
Within those cycles are the usual value, growth, peak and correction phases.
But unlike other general asset classes, property is so segmented that individual residential property blocks can have a different cycle to a surrounding postcode.
Knowing where you are on a property cycle means following a strict process of understanding the macro and micro elements affecting your decision. In many areas local influences can be as narrow as being on the ‘‘right’’ or ‘‘wrong’’ side of the street when it comes to investment returns. New infrastructure like roads can boost or deflate values depending on your proximity and access. Likewise the release of new housing areas can affect demand and supply and, therefore, prices. A building boom means more stock and a dampening of prices. Changing demographics within an area can either turn new buyers on or off and can narrow the appeal of properties. Having the right property for buyers attracted to that area is a key element. Assessing the suitability and construction of an individual property determines the risk of any future costs to rectify problems. Those rectification/modification costs can be pretty hefty if they are unplanned, unexpected and unbudgeted. Residential property tends to be a good barometer of a country’s economic health. Maybe that’s why on a comparative global scale Australian property prices are among the most expensive in the world. The most important economic indicators which affect property markets are:
Unemployment - the more people out of work the less likely they are to be able to afford to buy or upscale.
Interest rates - lower interest rates mean lower repayments or ability to borrow more to trade up.
Population growth - a baby boom fuels demand for bigger houses w h i l e migration increases the number of potential new buyers.
Exchange rates - a falling Australian dollar makes our property prices cheaper for expats and foreign buyers using other currencies.
Consumer confidence - buying property is a big-ticket item. Low consumer confidence means buyers are less likely to take the risk of staying and more likely to stay put.