Keep calm and carry on

While it's tempting to try to time the market to maximise your profits, this strategy is often a poor choice for property investors.

Instead, focusing on "time in the market" is a much more effective approach because, as we know, the market works in cycles.

The issue is that no one really knows, not even the experts, how long each cycle will last because it depends on a huge number of variables including economic conditions as well as human behaviour – and we all know how hard that is to predict.

Instead of timing the market, sophisticated property investors understand that they need to focus their efforts on buying an investment-grade property, in an A-grade location at the time which suits them.

The important part of that statement is that they always buy "investment grade” properties in good locations because these are the types of properties that will outperform in the long run.

Smart investors don’t wait around for the lowest prices or for a downturn, they buy when they have their finance ready.

It can be tempting, especially in a downturn like we’re currently experiencing, to hang on and wait for prices to lower further with the idea that you’ll get more ‘bang for your buck’.

But the reality is, investment-grade properties in good locations are more stable than in other markets and the point of the cycle is less important if you’re committed to holding the property long-term.

This means that it doesn’t really matter that much when you enter the market if the value of your property will double in value over a 10-year period as it has over the last 40 years.

What’s important is that you hold the property for long enough to see compound growth.

This strategy would also help you to ride out any temporary market fluctuations.

That way, if it comes time to sell down some of your assets when you reach retirement, or whenever is the right time for you, you will have created wealth from your portfolio's compounding equity over the decades.

The risk is that by waiting for the ‘perfect time’, property investors risk missing out on time in the market which translates into money earned, or they could even miss out on investment grade opportunities altogether.

Domain Chief of Research & Economics Dr Nicola Powell agrees and advises that potential buyers keep calm and carry on.

"I really believe, having pored over 30 years of housing market data, that housing markets are cyclical, and you go through lots of periods where prices rise and then fall,” she says.

"When you’re purchasing a property, it’s for a long-term investment and you are going to ride multiple property cycles, and that’s how you build financial wealth. So if I would give any advice, it would be to buy when it’s right for you. Housing markets are complex and often impossible to predict.”

Ray White Group chief economist Nerida Conisbee echos the same concept, saying that many people have missed out on buying homes after waiting for a price crash which never came.

Instead, prices moved in the opposite direction and left many of them high and dry, and now unable to buy the properties they could have back then.

"The best time to buy is always when you are personally and financially ready,” she says.

"We generally don’t advise people to wait for interest rates because it’s so easy then to become unstuck when they don’t change for a while, and you’re left in a fairly negative position.

"It’s better to buy when you’re ready to. And if you buy now, you’ll still benefit later when interest rates do come down, as well as from any price rises in the meantime.”

While most commentators believe that interest rates will be cut later this year, improved affordability that follows will encourage more buyers into the market and quickly push prices higher.

That means there’ll be more competition for properties and prices may well go up further as a result.

So if you have the financial capacity to buy now, and you’ve seen a property you like and can afford, then I’d suggest you do that sooner rather than later.

We’re probably seeing another six to eight months where rates will be on hold, with the first-rate cut early in the second half of this year.

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Jason Gwerder
Tuesday, 5 March 2024

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