Think carefully before using hard-earned equity from family home to fund a holiday home.
How to buy property well in spring
Welcome to spring, a time when the property vendor, like some other mammals, generally emerges from hibernation. Starved of stock in winter (and indeed most of 2019), real estate agents and buyers certainly hope sellers take their traditional seasonal cue.
But prospective spring buyers can’t just rely on more supply to be successful. The market will be competitive, and they’ll need to understand vendors’ psyche and plan accordingly.
So what are vendors thinking? One might assume it is the higher auction clearance rates and, in places, some tentative price growth over winter that will tempt out the vendors. In fact, it may not be dry city-level data that draws sellers into the sunlight. Rather, prospective vendors are often persuaded by the more tangible if less scientific evidence of recovery: a spate of properties on their block or down the road that sold at values meeting or exceeding expectations.
Estate agents absolutely understand the power of example. Word of a strong result spreads like wildfire among agents and is then fed to a database of likely and might-be vendor clients, as well as to those with a property already on the market. The new intelligence and the heightened promise of success it heralds is often enough to cajole more owners to sell.
It is through this locally-focused, momentum-driven manner that the spring market is built. And it’s why one suburb can be well stocked with listings come mid-spring, while an adjacent neighbourhood remains moribund.
There are vital lessons for prospective buyers who grasp this transmission mechanism underpinning listing decisions. First, discretionary vendors dominate the selling market in our capital cities. By and large, vendors only come out to play when conditions are in their favour. The second, and consequent lesson, is that buyers can have genuine choice or bargain prices yet nothing to buy, but clearly not both.
For instance, in my hometown of Melbourne, we’re now seeing a better-than-elsewhere jump in listings in some inner northern suburbs – such as Brunswick and North Fitzroy – where there were several cases of these strong winter results I mentioned earlier. But, sorry buyers, vendors appear to have already factored in the good winter results into their spring quotes.
By no means are prices anywhere close to their 2017 peak, but in these early bloomers – let’s call them daffodil suburbs – values are already three-to-five per cent up on the bottom.
The sound buying strategy for acquiring investors this spring is to focus on the daffodil suburbs – as that is where the choice and opportunities are. But in doing so, prepare for the worst and assume prices are three-to-five per cent above the nadir, whilst still hoping and monitoring market for a better outcome.
I’m sure some prospective buyers will read this advice and decide they can take chances with a drum-tight budget. Yet the prospective buyer who will only pay bottom-of-the-market prices is likely to be repeatedly disappointed through spring, either wandering aimlessly in low-stock locales or being regularly outbid at auctions and private sales.
Of course, there is no need for buyers to be reckless, even if they are armed with a good budget. Bid confidently at auctions but disavow showy or aggressive behaviour. Avoid throwing out knockout bids at auctions. It tends to alert an estate agent that you have plenty more budget, which they may try to extract by passing the property into you rather than sell under the hammer.
It will be the well-armed but softly spoken buyers who earn the bouquet in spring’s daffodil suburbs. Richard Wakelin