It’s always interesting that in soft property markets people tend to hold off buying, and yet when the market is running hot they will jump on any house at almost any price.
BUT … my wife is always happy to go shopping when there is a sale on!
The property market may be in a soft patch or slump and that always makes people nervous. That’s natural but you sometimes need to remind yourself of why you are planning to buy a house.
Why Are You Buying A House?
If you are thinking of buying a house then you should consider what your plans are, and most importantly what your time horizon is. Of course nobody knows if house prices are going to decline more or recover soon, but what most people will agree on is that house prices will continue to increase over time.
What’s your reason to buy?
- Home – if you are buying a home then you probably expect to be living their for some time, or at least plan to remain in the market for some time. If this is the case then we would say that you have a long time horizon and therefore any short-term market movements probably shouldn’t be a concern.
- Investing – when you buy a house as an investment then again this is generally a purchase with the idea of holding it for the long-term.
- Speculation – if you are speculating then by definition you are buying with the “hope” that values will increase and generally over the short-term, but this comes with the risks that values won’t increase and may even decline.
Property speculation involves buying property with the hopes of reselling it at a higher price in the near future. History has shown that in many countries the values of property does increase, but property values can and do also fall. Speculation in any market has risk and therefore you need to be able to withstand some losses, or with property have the ability to hold for a longer period until prices recover again.
Once you know why you are buying a property and the time horizon you can consider your options in a more pragmatic way.
The Property Market Cycles
You may have heard people talk about property market cycles, and how property values go through periods where prices increase, periods where values are quite flat and periods where values decrease too.
We’ve seen house prices increase a lot in New Zealand, but we have also had periods when house prices decline. In the last 20-years we have seen three main downturns since which broadly occurred 1990-1992, 1998-2000, and 2008-2010. These were all periods where the economy was not performing well; however these periods were also followed by a strong recovery.
When we look at property market cycles it’s worth noting that the trend has always seen prices increasing over time, and you can pick any 5-year period and house prices are higher at the end of that period. While we cannot ever be 100% sure that this trend will continue, you should be reasonably confident that over a period of 5+ years then you should not lose money on property.
Advantages Of Buying In A Soft Market
If you are planning to buy a house either as your home or as an investment then you shouldn’t be concerned about the current market conditions as we would expect that the market will recover and prices increase again. It’s just hard to predict when this might happen.
Buying in a soft market does have some advantages, and the main being that it’s not as competitive meaning it favours buyers rather than sellers.
There are still other buyers in the market, but not as many and most are not as aggressive either.
This means you can generally take a bit more time and do your due diligence. There are also more opportunities to negotiate as the sellers may need to sell and therefore be open to any offers including offers which may be lower than expected. You will probably notice too that the method of sale has generally moved away from auction with more vendors (sellers) being open to negotiate and offers.
The key is to make sure that you have the finance in place, and this is not as easy in soft property markets as the banks lack confidence and take a more cautious approach.
Banks are making it hard for property investors to get finance so it’s important to have good help.
As mortgage advisers we are arranging pre-approvals all of the time, and with access to a range of the banks and lenders it means that we have some really good option’s for both home owners and property investors.
