Should investors wait for the right time to buy?

Human beings can be fickle. We tend to buy up big when prices are low (ever noticed that sale times are so popular?). 

When it comes to investing though, we often lack confidence to buy when prices are down. Yet this can be the best time to pick up a bargain.

Right now, many areas of the property market are dishing up some of the best affordability seen in years. Add in super-low interest rates and rising rental yields, and it’s easy to see why the opportunities all flow investors’ way.

Let’s break it down.

It’s a buyer’s market

The latest data from CoreLogic shows that across Australia’s state capitals, property prices have dropped 8.49% over the last year¹. In Sydney, prices are down 10.9%; Melbourne down 10.0%².      

Put simply, in our two biggest cities you could save around 10% on the price of a property by buying now compared to last year. And when we’re talking about median property values of around $781,000 and $622,000 in Sydney and Melbourne respectively³, that’s a valuable saving.

Should you hold out longer? 

Unfortunately, no one rings a bell to signify the end of a market downturn. However, CoreLogic confirms that the rate of price declines has slowed since December 2018⁴.

In fact, according to CoreLogic head of research Tim Lawless, “The current trend in the data implies that housing market conditions may have moved through the worst of the downturn⁵.”

The thing to bear in mind is that property often works best as a long term investment. So while values may, or may not, fall further, buying today can give you the certainty of locking in excellent value.

Interest rates are low

Reserve Bank of Australia (RBA) figures show that the 3-year fixed rates for investors currently averaging around 4.24% p.a.⁶. That’s the lowest since the RBA began recording these rates in 2015, and as Mortgage Choice brokers know, it may be possible to pay less.

Better still, some commentators believe that rates could fall further in 2019⁷.

An easing lender market

Earlier this year, bank regulator APRA lifted the benchmark it had previously imposed on the level of interest-only loans banks are allowed to provide. It followed the removal of APRA’s previous limits on the growth of investor-lending.

The bottom line is that banks have more scope to lend to investors. 

Yields are picking up

For investors, gross rental yields are rising in some cities. In Sydney, apartments are currently yielding 4.1%⁸  compared to 3.8% at the end of last year⁹. Melbourne is delivering gross yields of 3.6%¹⁰ compared to 3.4% in late 2018¹¹.

That said, far higher gross rental yields are being achieved by investors in other state capitals including Darwin (6.0%), Hobart (5.2%) and Brisbane (4.6%)¹². 

Where to buy?

Your choice of location is a very personal issue, hinging on what you are aiming to achieve through your property investment. Click here to check out the best coastal cities to buy a house in Australia. 

As a broad overview, Canberra, Hobart and Adelaide have all achieved price gains over the last 12 months¹³. According to the latest CommSec State of the States report¹⁴, New South Wales and Victoria still have two of the nation’s strongest state economies. Queensland is not far behind in third place for both economic growth and population growth, and in Western Australia, the population is increasing at its fastest pace in three years¹⁵.

However, as CoreLogic’s Tim Lawless notes, we are seeing signs of improved credit flows from lenders, and a mid-50% clearance rate of auction sales implies “a closer fit between buyer and seller expectations¹⁶.”

Getting into the market today can mean taking advantage of improved affordability, and that’s a real plus for achieving your property goal.