I’ve heard some wild stories and pretty interesting takes on what is happening in property at the moment, and what is destined for the market this year. I think the only thing that everyone agrees on right now is that we are in a rising property market.
I’m looking forward to getting into some of those stories in another article, but for now, let’s keep it to what we should be thinking about when buying in a surging property market like the one we are in
I will precede what I’m about to say on this topic by stating that although I’m an expert in the field, you need to take what I and everyone else says with a pinch of salt. Everyone is different – everyone has different goals and everyone has different constraints. So you need to consider what’s right for you and what’s important to you.
Don’t forget the basics
So let’s get the basics out of the way. When buying, don’t forget…
- Structural inspections
- Timber pest checks
- Planning searches on your council’s website, and intramaps
- Is everything on the property council approved
- Check the location of services on dial before you dig
- Drive past the property during the day and night
- Check what the peak hour traffic is like nearby
- What are the neighbours like
- What are your public transport options
- Is it NBN ready
- Is underground power connected yet or will the cost be added to your rates in the coming years
Inspect the property carefully before you buy. The rules are that when a sale settles, the property only needs to be in the same condition at the time of settlement as it was on the date the contract was accepted. Not any better and not any worse. Even though the agent should be letting you know what works and what doesn’t…don’t wait for the final inspection to find out a sensor lights doesn’t work, or a window lock is broken, or there’s a faulty power point hidden somewhere which no one knew about. Inspect well and ask the agent if you are unsure.
Although a lot of people may neglect some of the basics, it only takes one occasion for a missed item to bite us on the bum down the road. We can’t dismiss the basics whether it’s a surging or declining market.
Beyond the basics
I’ve had many conversations with people over the last few months about what they should consider when thinking about buying in the current market. I couldn’t give them all due consideration here but there are a few common areas where people are running into trouble.
Accepting the changing market
As we can all see, the market is moving quickly, and very quickly at that. It’s been difficult for many of us to get our heads arounds where current market prices are. Consider this scenario, we look around, make a few offers and get knocked back on them while trying to “get it at a good price”, and end up paying an extra $50k on a similar property just a few months later. Did we take too long to accept where price have moved to? In short, yes!
Be prepared to re-evaluate what you thought a certain property should be worth. I know there are plenty of people that can’t believe the prices people are paying for property right now. But…a market price is a market price. People aren’t necessarily paying “too much” for property right now even though it feels like that due to the pace of growth over the last 9 to 12 months.
From my property valuation days I can recall, a Market Value is defined as the “estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion” (Australian Property Institute). So rather then things being overpriced, a more accurate view might be that this is where the market is right now. However, it is important not to lose sight of the fact that Western Australia is still the most affordable state in the country. How much do you think it would cost to buy a home in Sydney within 1km from the river and only 15 mins from the CBD? In Melville you can still do very well for under $1m, but in Sydney you will end up with much less.
There’s really nothing to indicate the market will slow down this year, so it might be better to adjust your expectations now rather than waiting till the end of the year, or next year, when it’s very likely that prices will continue to grow considerably. If you can’t change your budget, it might pay to change your target property or suburb. I know these decisions can feel sobering, but it might be better to make them now as they might get even harder to make later in the year.
To put our prices in proper context, according to CoreLogic data from April 2020, all capital Cities in Australia have reached record highs for houses prices except Perth and Darwin. Despite recent surges in prices, Perth median house prices are still 15.9% below our previous record highs. As at January 2021, Perth median dwelling prices were only above Darwin and Adelaide and were still well behind Hobart and Adelaide. In our last real boom in 2007, Perth was only second to Sydney in median prices for dwellings. Now I’m not saying that Perth prices are going to jump up to just below Sydney, but it shows how low prices have been since then and that we clearly still have a long way to go to catch up.
Buying within our limits or getting a bargain
Have we forgotten that the long-term trend for property prices (for prices of most things) is always up? In a surging market like this one, prices move up quickly. We can’t expect to look at property that has us stretched financially and just assume that we are going to be able to still get a deal on it or get it under the asking price. For very savvy buyers/investors there are always good deals to be found, but for the typical buyer looking for their next home, bargains right now are few and far between. Buyers waiting for a dip in price may end up quite disappointed.
To improve your odds, you might better off targeting properties in a price range that allows you a bit of room to move. Chances are, you are going to need to offer a good price relative to the asking price to ensure you can secure it.
What about the FOMO?
Emotions for buyers are peaking at the moment! Some buyers are just desperate to get a roof over their family’s heads and some desperately don’t want to miss out on “Perth’s next property boom”. FOMO has become a factor in our property market but is it real? Or, are we buying into a frenzy whipped up by the media? My view is, it’s a little from column A and a little from column B. As I mentioned, there’s really no indication that prices are going to slow down this year or even next year. But…I don’t care how much of an expert you are; we are all crystal balling to some extent. I mean look at where we are now following the initial blow of COVID in early 2020…show me one expert who predicted back in March 2020 that our property market would be surging the way it is now! But beyond this year and maybe the next, its very hard to say with any certainty where prices will be. They could be astronomically higher, they could stabilise, or they could decline again. There are a few too variables at play right now to make an accurate prediction and we have never had a point in history quite like this to measure from.
That being said, given where it looks like prices will end up later this year, if you are looking at buying now, or soon, it certainly makes sense to get in earlier rather than later. If prices increase anywhere near some predictions this year, let’s say 10%, then that property you looked at worth $900k is going to cost you nearly $1m by the years’ end. I still wouldn’t recommend overreaching though, so be cautious with the amount of debt you take on and don’t get caught up in the hype. Make sure you are comfortable you can still find a way to make your mortgage payments if your circumstance change or in the event that interest rates rise, which they will do at some point in the future.
Going in prepared
If you have made the decision to go for it, get your ducks in a row now! Unprepared buyers will be left for dead by those who are ready to go! Get acquainted with where the market is, make sure you know what sort of property you want and make sure it’s within your budget. Speak to your bank and broker to make sure you have a clear understanding of your limits if you are borrowing and seek a pre-approval if you can. If a seller is looking at two almost identical offers, but the only difference is the other party has a pre-approval, 9 times out of 10, my money would be on the pre-approved offer. And when you find “the one”, don’t leave it up to chance. It’s a game of inches sometimes, so give yourself every advantage you can!
If you want to have chat with James before you make your buying decisions, he’s happy to help. James is best contactable via email at email@example.com