I know. This is not exactly what you want to hear, especially if you’ve been saving and scraping during the past year. It’s also not something you’d expect to hear from a property advocate like myself.
So, why on earth would I be cautioning you against buying this spring?
Before I present my case, I want to be clear that I don’t buy into the ‘bubble’ theory that’s been going around since I started editing Your Investment Property
some eight years ago.
Like clockwork, each time the property market recovers, the bubblers come out of the woodwork. Most notably – those who are based on the other side of the world who claim they know what’s really happening in our property markets.
They are usually joined by our home-grown property pessimists like Steve Keen, who has been warning us about property price collapse since forever.
So far, none of these prognostications have come to pass. Our property markets continue to outperform and despite the high price tag, there are no indications so far that a price bubble is about to burst.
Experts say that in order for a bubble to occur, there has to be a combination of easy money and rapid price growth which are totally out of whack with the market’s fundamentals.
In other words, loose lending policy by the banks combined with buyers’ irrational exuberance.
Granted there are signs of growing speculative activities among investors, which have recently caught the attention of the Reserve Bank, but the situation is far from what’s considered “dangerous territory”.
The banks are still fairly strict with their lending criteria but the high proportion of investment loans has definitely sent a red flag to the central bank, which said that it could be a sign of “speculative excess”.
So, back to my warning against buying this spring. Why indeed should you stay away from the market this time?
Two words: competition and timing.
There are simply way too many motivated and desperate buyers out there. Too many people are blinded by their fear of missing out. You will be competing with these buyers who are likely to over-pay and over-leverage just to get their desired property.
Now is not the time to over-stretch yourself, especially with the ongoing economic uncertainties here in Australia and in the international markets.
If you want to buy your investment property, opt for the more affordable option instead and avoid all that stress that comes with big mortgage repayments.
Better opportunities next year when the markets consolidate
Obviously the best time to buy is when you are financially ready, but there are better times than others.
Buying now at the top of the market means you’re limiting your future gains and exposing yourself to losses when the market eventually consolidates.
If you haven’t bought your first property yet, you may want to wait until the end of next year when the market will have cooled and consolidated to a more normal level according to Residex CEO John Edwards.
“For those who are yet to get established or buy their first, or another investment property, there is no rush as there will be good opportunity in 2015 once the market moves into a consolidation phase.”
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