The Upside To Buying In A Down Market

Every property cycle creates winners and losers, but not always for the reasons people expect. When markets begin to cool, some buyers become cautious and wait on the sidelines, believing they’ll simply buy later if prices fall further.

Yet experienced buyers know that changing market conditions create the best opportunities to negotiate, upgrade and secure quality property on more favourable terms. They know that understanding how the market is moving and how to respond is far more important than trying to predict the exact bottom.

WHERE'S THE MARKET HEADING?

There’s certainly been no shortage of headlines predicting where the property market is heading. Some commentators are forecasting significant price falls, while others state the market will remain more resilient than many expect.

There are two key problems with media headlines and generic commentary. First, they tend to focus on top-line numbers without acknowledging the multi-speed market that really exists. Second, they rely on monthly price data that reflects sales negotiated six to eight weeks earlier.

This is why relying on median price movements alone can be misleading. Property prices tell us where the market has been, not where it is heading. By the time changes appear in the published data, buyers and sellers have often been responding to new market conditions for several weeks.

To understand where the market is moving, it’s more useful to focus on forward indicators rather than historical price data. One of the simplest and most reliable indicators is the level of supply, and specifically the number of properties listed for sale.

As more properties come onto the market, buyers generally have more choice, competition between purchasers eases, and sellers become more willing to negotiate.

Moving into the Spring market, we’re expecting supply to continue increasing as more owners adjust to the new market environment.

This doesn’t mean prices will fall sharply across every suburb or property type. Home buyers will continue to provide strong support in many parts of the market, while quality properties in tightly held locations are still likely to attract solid demand.

However, the key point is that changing markets often create the best buying opportunities. As competition eases and sellers become more realistic, skilled buyers can negotiate more effectively and, in many cases, secure better value than was possible during the peak of the market.

UPGRADING?

Softer markets present opportunities for existing home owners looking to upgrade. Many owners delay making a move because they’re worried about falling prices, but the mathematics of upgrading actually work in your favour when the market is easing. 

Let’s look at a simple example using round numbers.

If you own a $1 million apartment and decide to upgrade to a $2 million house, the raw change over cost is $1 million plus expenses.

When the market is falling, the $1 million apartment you are selling drops to $900,000. However, the $2 million house you wish to purchase also drops by 10% to $1,800,000, leaving you $100,000 better off on the raw numbers. The transaction costs, being stamp duty and selling fees, also decrease by about 10%, diluting the changeover cost further.

On the flipside…when the market rises 10%, the value of the $1million apartment you are selling rises to $1,100,000. However, the $2 million house also rises by 10% to $2,200,000, leaving you $100,000 worse off on the raw numbers. Let’s keep in mind some of the transaction costs, such as stamp duty and agent’s fees, also increase by 10%, pushing the cost of transacting up even higher.

SHOULD YOU BUY OR SELL FIRST?

The order in which you buy and sell can also make a significant difference to your financial position.

In a rising market, it can be advantageous to buy your next property before selling your existing one. During the period where you own both properties, both are potentially increasing in value. By contrast, if you sell first and prices continue to rise while you search, the cash from your sale may gradually lose purchasing power and the gap between the property you sold and the one you want to buy may widen.

In a falling or cooling market, the reverse can apply. Selling first allows you to lock in the value of your existing property before purchasing your next one. If prices continue to soften while you search, your purchasing power may improve and the changeover gap may become smaller.

Remember that selling first doesn’t mean moving out immediately.  A sale occurs when you enter into a binding contract with a buyer, while settlement and moving generally take place several weeks later. By negotiating a longer settlement period, potentially 10 to 15 weeks, you might be able to lock in the sale of your existing property while giving yourself time to find and purchase your next home.

The best sequence will depend on your financial capacity, the conditions affecting both properties and the settlement terms you can negotiate. However, understanding how the market is moving can allow you to structure the transactions to your advantage rather than simply following the same approach in every market.

OPPORTUNITIES

Property cycles don’t just influence prices, they change the opportunities available to buyers. While softer markets can feel delicate, they’re often the time when disciplined buyers can negotiate better, upgrade more efficiently and secure the property they really want at a lower change over cost. Rather than trying to pick the exact bottom of the market, focus on understanding the conditions in front of you and using them to your advantage.

If you’re trying to figure out your best next steps, book in for a Property Clarity Chat here.