5 QUESTIONS TO ANSWER BEFORE BUYING OR SELLING IN THIS MARKET
Different segments of the market are stronger than others at present and by being vigilant, you will quickly grasp what the market is doing in your category. It’s not rocket science, once you know where to look.
- Is it better to buy or sell first? The current market is not enjoying the robust conditions that it did last year. Sales campaigns can take longer than expected and can also produce a lower price than hoped for. If you buy before selling with the expectation that you will sell for top dollar in a short time frame, your plans may very well come unstuck. It is safer to sell first, get a delayed settlement and use the settlement period to purchase a home, because buying under pressure is better than selling under pressure.
- What if the market falls? Buying real estate is a longterm play – or should be. During your ownership of a property, the market will move up and down at different times. No asset class enjoys consistent rises and market corrections are a normal phase of the cycle. The key is to buy the right property at the right price, one that is representative of fair market value and one where you can comfortably afford mortgage repayments, even if interest rates rise.
- How do we determine fair value in the current market? Attend open inspections and auctions. Observe the market and disregard the commentary. The real estate agents view on the market is often overly positive, while the economist’s view can be unduly negative and the auction clearance rate is simply an embellished number given the number of failed campaigns that go unreported.
- What if interest rates do rise? The banks will often ask this question on your behalf when processing your loan. It is one of the ways they stress test your ability to continue meeting the repayments. The RBA is hinting to the market that there will be two rate rises in 2018. Given the record amount of household debt, how would two rate rises in the next 15 months impact the market at large and your own finances on a smaller scale? The only thing worse than knowing about potential interest rate rises is not knowing!
- Is it better to wait…? Wait on what basis… you hope to buy for a lower price next year? Or you think the market will rise again in 2018 allowing you to sell for an even higher price? The reality is, no one knows. The market today is the market. Tomorrow’s market is anyone’s guess. There is a reason to act today and there is a reason to wait. Only hindsight will be able to identify the right answer – if there is one. Speculators tend to win big in rising markets and get cleaned out in falling markets. Lesson being – don’t speculate on making easy short-term gains with real estate.