Source: Chris Gray, CEO, Your Empire
"In my 30 years as a property investor, I've declared may times that I never try and time the market - I buy when 1) I've got the deposit 2) I can get a mortgage and 3) when I've got the cash buffer to take me through the next few years.
However, most property buyers don't think like that and many of them are waiting for the bottom. If that's you, then like auctioneers often say at the auction 'I'm giving you fair warning…' – I'm saying the bottom could be almost here, so you might want to get ready and get moving
Changes in the property market are often caused by the softer side of things rather than hard facts and figures, so consumer sentiment – how people are feeling – often has more effect that the interest rate you a paying or the size tax rebate.
So, what's happening:
1) Earlier this month, CoreLogic released the results of their Home Value Index and for the second month in a row Sydney prices had risen and not fallen. Melbourne and Brisbane had their first positive month as well. That is not a speculation or an estimate, that is a fact – property prices rose.
2) The RBA announced that interest rates would stay on hold this months and I think the whole country took a sigh of relief. Sure, there might be one or two further increases, but there might also be some earlier than expected rate drops before the end of the year. Whichever way it goes, it's a pretty big sign that we are at or near the peak of the current interest rate cycle.
3) If rates are likely to drop in the future, then that will increase everyone's serviceability, allowing them to buy more property than they can now. If rates are due to drop then there's also a chance that the banks / APRA will reduce the 3% serviceability buffers they currently assess borrowers at, further extending what buyers can borrow.
4) On the negative side, there's some talk about the potential mortgage cliff with up to 30% of fixed loans changing to interest only (IO) loans and/or changing to principal and interest (P&I) in the future. If those borrowers are not able to pay the much higher monthly repayments, then there could be a lot of distressed property up for sale.
5) If 30% of mortgages could be up for a change to higher rates, then that means 70% have already made the change and they have been able to keep up their repayments. Those that are hoping to change would have had their serviceability assessed at +3% of where rates were then which is similar to where they are now. They've had the last few years of lower repayments than everyone else and so surely some of that saving would have ended up in their offset accounts, giving them more ability to pay.
6) Elections are out of the way for a while and so that's another fence sitting excuse that's not going to be around for a while.
Just remember that in COVID the 2020 predictions were that the property market would drop 20-30% and it only temporarily dropped 5-10% at most. In 2021 they said the market would drop 10-20% and again it was only 5-10% in places. So, there isn't a great history of getting predictions that accurate.
What I do know that if you invest in blue chip locations and hold on for the long term, you've got a very good chance of making money. Get in when you have money to get in and to hold on.
So, if you're not like me, and you still want to time the market, this could be the sign you've been waiting for.