There is an old piece of investment advice that specifies that you should buy when the market is down and sell when it is up. For anyone who has bought property in my lifetime, this has been good advice in almost every market. In fact, even buying at the absolute peak of the market almost always works out in the short term.
Consider the worst property market downturn this century. In Sydney following the Global Financial Crisis, the median house price dropped by 17 per cent over 14 months to hit a low in February 2009. Within eight months, they were back at the initial high and price growth continued. Even if you had bought in Sydney at the absolute peak of the post-GFC market, in less than two years, you would have been back to where you were and then seen a 14 per cent further increase.
It isn’t different this time around. Prices will come off and then they will pick up again. If you think through the fundamentals of property demand, now is a particularly interesting time. On one hand, interest rates are rising rapidly, restricting people’s ability to borrow. But on the other hand, the fundamentals of property support the market – international migration is starting up again and a construction crisis is restricting new supply. More housing is needed and for now, this is showing up in sharp rises in rents. Sooner rather than later, it will flow through to prices.
While now is a down market and hence a good time to be a buyer, there is one type of property that is worth looking at, provided you are someone with a bit of patience. A particular feature of the economy right now is very high construction costs. It has been driven by a range of factors but supply chain blockages and labour shortages are the main ones. At some point, these will ease off. In the meantime, although house prices have come back, it is difficult to buy a renovated property – pricing continues to hold up because of how hard it is to renovate or knock down and rebuild. With a lot of unrenovated properties available, at decent prices, if you are prepared to hold for around 12 months, this represents a buying opportunity.