The media has been positively frothing this week with some economists forecasting a real estate market crash.
We think that sentiment is a little overblown and we’re expecting a soft landing but, either way, the current environment is presenting many opportunities for savvy homebuyers.
What is happening out there?
The September quarter saw average property prices fall in most capital cities compared to the June quarter, according to the latest figures from the Australian Bureau of Statistics (ABS).
Melbourne (-2.6%) and Sydney (-1.9%) felt the sharpest falls, followed by Darwin (-0.9%) and Perth (-0.6%).
It’s been welcome news for first home buyers, but it’s also a golden investment opportunity if you act smart and act fast.
For Sydney and Melbourne, in particular, most experts are predicting that property prices will continue to fall for another 6 to 12 months.
By how much? No one knows, but we’re predicting by at least another 3-5%.
For homebuyers, it’s time to snap up a bargain.
For investors, keep your eyes on long-term rental yields and capital gains.
Lesson 1: Location is more pivotal than ever
Our capital cities may be experiencing a downturn but have you considered buying outside of your postcode or even interstate?
Many would-be homebuyers in Melbourne and Sydney are choosing to delay buying a home so they can purchase a property that is more within their price range.
Part of this strategy is to use this time to save a larger deposit to avoid paying Lenders Mortgage Insurance (LMI).
The problem is that you won’t know if and when property prices will start increasing again.
If you’re currently paying rent, this compounds the negatives of being out of the market.
Times like this call for doing your homework!
For example, if you’re looking to buy and sell within a couple of years, you might want to consider outer Brisbane suburbs like East Ipswich, Barellan Point and Karalee rather than Queensland’s capital.
Turning to Victoria, you can reap the positive effects of new infrastructure projects in Ballarat, which is attracting homebuyers who travel to Melbourne’s CBD for work.
The Ballarat Railway Precinct redevelopment will see median house prices rise by a cumulative 6.9% to $385,000 by 2021, QBE’s Australian Housing Outlook 2018-2021 found.
Check out our recent blog on QBE’s 3-year property forecast to get an idea of the opportunities available in select locations.
Lesson 2: Know your vendor
Would-be property buyers in our capital cities have barely been able to flex their negotiating muscle over the past couple of years, but the tide is slowly turning.
Buying below market value is possible if you understand the mindset of the vendor (property seller).
Typically, this has to do with how long the property has been on the market and whether the asking price is reasonable.
Firstly, do your due diligence on the property and the local market by following the 4-step guide on the How To Value A Property page.
Secondly, beware of properties that have been on the market for just 1-2 weeks.
The vendor may be holding out for their asking price or a higher offer so now might not be the right time to come in with a lower offer.
If the property has been advertised for six months or more, the vendor either has a sentimental attachment to the property, or they have put considerable time and money into renovations and repairs.
Either way, they’re unlikely to budge on price!
As a general rule, consider making a lower offer on a property that has been on the market for six weeks or so.
Most vendors at this point recognise that the initial interest in the property has passed, so they’re willing to consider lower offers.
If you’re not entirely comfortable in purchasing at the vendor’s asking price, have a chat with the real estate agent after the open house and ask them if they have any properties where the vendor wants to sell quickly.
Ultimately, they want to make a sale, so, if they can do business with another client, the agent will help you out.
Lesson 3: Auctions will always be madness
Auctions are the one place where logic goes out the window and emotions run high.
The key is not to get caught up in the show!
The ‘How To Negotiate’ guide will tell you why most people suck at buying at auction and how you can keep a calm head.
Lesson 4: Make offers on multiple properties
Remember lesson 2? Do that another 5, 10 or 20 times!
Moving fast and making lower offers on multiple properties is what professional properties do to snap up a bargain.
If one property falls through or the vendor is taking you for a ride on the asking price, learn to move on quickly in the knowledge that many markets are experiencing a slowdown.
We’re not quite in a buyer’s market yet so doing the legwork and inspecting many properties is what you need to do to buy the right property at the right price.
Keep this up, even when you start negotiations with a new vendor.
Real estate agents will often pressure you into signing the Contract of Sale but, in a cold market, you have the power to turn the tables.
Tell them that you have made offers on other properties.
Unless the vendor is willing to drop their asking price, you can threaten to move on.
Lesson 5: Get pre-approval before paying a deposit
We can’t tell you the countless times that we’ve received a call from a client at the eleventh hour needing a home loan approval after paying their deposit.
In many cases, they were previously declined by a lender, unaware that they would encounter any problems getting approved.
There are actually many reasons that you can be knocked back for a mortgage.
It could be because:
- Your deposit is too small, or you don’t have genuine savings.
- You have a black mark on your credit file that you didn’t know was there.
- Your property is unacceptable to the bank.
- You have an unusual employment situation.
- Many other reasons….
The best approach is to get home loan pre-approval before you start making offers on properties.
The next step is to ensure that the sales contract has a cooling off period and a finance clause.
You can then go into negotiations with confidence in your borrowing power, the knowledge that you have three months before your pre-approval expires, and that you have protection in case things turn pear-shaped at settlement.
A final note: Don’t commit to buying a property until your mortgage broker and your solicitor or conveyancer has given you the go ahead otherwise you risk losing your deposit.
Lesson 6: Trade up your home
If you’re willing to take a hit when selling your own home, you can “trade up” and buy a new home that better matches your long-term lifestyle goals.
Now is the time to get a great bargain on a new home that is closer to work, better schools for your children, beaches and national parks, or great transport and infrastructure links.
Lesson 7: Be prepared to move quickly
It’s not about timing the market: it’s about time in the market.
This sentiment still holds even when real estate prices are in a downturn.
Get started on your home buying journey today by speaking with one of our experienced mortgage brokers.
We can assess your eligibility for a home loan so call us on 1300 889 743 or fill in our online enquiry form today.