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Buyers, go against the herd!

John McGrath
Tuesday, June 21, 2011

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“Be fearful when others are greedy. Be greedy when others are fearful.”

Wise words from one of the world’s most successful investors, Warren Buffett. And I think this sentiment definitely applies in today’s market.

Right now, in the winter season of 2011, we are experiencing a temporary pause in the market which I believe is healthy. Buyers are cautious again, clearance rates have dropped and prices have gone down slightly.

What does this mean for buyers? In short, great news! But guess what? Unfortunately, the herd mentality prevails, and of course it’s understandable.

In real estate, I find that herd mentalities are often driven by the boom-or-gloom stories we hear from analysts, commentators, colleagues, neighbours and even well-meaning friends and family members. But if you believe everything you hear, you’ll convince yourself it’s never the right time to buy.

More good news for buyers. Demand has outstripped supply for a long time and it continues to do so. But right now, RP Data estimates there are 30 per cent more properties available for sale across Australia compared to this time last year. So buyers currently have more choice, and they might also manage to pay a little less during this market lull (because the herd is waiting for the next guy to make the first move!).

If you’re a buyer, try and extract yourself from the current situation and take an umbrella view. If you’re looking to purchase for the long term, which I always recommend, then a 2.1 per cent decline in prices in the March quarter of 2011 is not going to matter in 2021 when property prices may have, once again, doubled.

If you wait for the herd, there’s one thing I can guarantee. When the herd starts buying again, prices will go up, and you’ll be kicking yourself you didn’t grab this current window of opportunity.

Let me guess your next question: “If prices fell a bit in March, shouldn’t I wait around to see if they’ll fall further?” I understand your thinking, but the truth is no one can pick the bottom of the market. Not even the most experienced global experts can do this with any sort of precision, so what hope do we have?

I can tell you with confidence that the weakness we are seeing now is not the beginning of a downward stretch. The fundamentals of our property market are still very good, but right now, we have a little uncertainty going on. This relates to volatile global economies especially in Europe, uncertainty relating to interest rates, a more conservative approach to debt and recent natural disasters. From a property market perspective, these are circumstances that are temporary and will resolve themselves.

Overall, we are still in a market upswing and our fundamentals of a strong population growth, a massive undersupply, increasing rents and a stable economy will keep our property prices strong in the long term.

Take a positive view of today’s conditions and start looking for new opportunities now!

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published: Tuesday, June 21, 2011

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