Buy in Gloom Sell in Boom!

You hear this old cliche saying all the time, and those of us who've been through a few property cycles know the wisdom in these six words. So many of us have "regretted" selling at the wrong time (well at least I know I have!) or buying too late into the cycle, when we had to compete with the manic overpaying and over-excited herd at purchasing time. Human emotion is all too easily contagious when everyone is doing one thing, and you're not. We want to be part of the action. I guess it's only natural

The trouble is that most property buyers engage in the opposite- buying in boom seems to be the downfall of most investors (or should we call them speculators?) as they mistime the market and get swept along with the accompanying madness and media frenzy at the time. Who can forget those auction buyers who broke down and cried on the six o'clock news in 2004, because they honestly believed they were going to be forever priced out of the Sydney market?
And yet, some four years later, prices have remained the same, stagnant or even gone backwards in some suburbs. Yes, they've been others that have remained almost untouched or unaffected, but these are largely waterfront and high demand/wealth areas that aren't as susceptible to the common vagaries that affect the general buying/selling public.

Selling in boom also seems to be an entire process of being "lucky" and those of us that have sold in such times successfully still found it difficult to pick the high; after all, no one has that magic crystal ball.

But buying in doom.... well everyone knows about it, they acknowledge the fact that it's a sound practice and a good idea, but how many of us actually practise what we preach?
Take the current climate here in Sydney. Very gloomy, if you believe the media and the general consensus around town. Every second week there's some story about some poor seller not getting what he paid back in 03-04, or another MIP saga reveals some "vulture" buyer who's "taken advantage" of yet another hapless vendor. The economy's down, petrol prices are rising, interest rates are high, the sharemarket's shaky, the subprime crisis is tightening credit ... it's all doom and gloom, or so it would seem.

Against this we have:

Rising skilled migration levels (Fed govt looking to increase current levels by some 30% in 2009, which is actually the biggest increase since the immigration programme was first released in the 1940's)

Low unemployment: currently at a low 4.3% (ABS) and steady

Decreasing building approvals: According to BIS Shrapnel underlying demand equates to a shortage of approx 30,000 dwellings. Developers are thin on the ground and failing along the way (eg Beechwood homes recent collapse)

Rising rents: REINSW recent rates show a record Sydney vacancy rate of 0.9% (May) Rises of 10% p/a over the next few years are forecast.

Yet where are all the buyers? Current listings are higher than normal, according to hard data released by RPData:

The above average level of stock remains in the market place, largely due to the lack of buyers willing or able to purchase. Market activity continues to slow whilst this week saw a significant injection of new listings meanwhile, potential buyers continue to sit on their hands until more certainty returns to the economy. It is unlikely stock levels will start to fall until there is a larger presence of motivated buyers in the market place – a phenomenon which appears unlikely to occur in the short term.

So, whilst all these buyers sit on their hands and wait for more "certainty" to return to the market sellers are having no choice but to either drop their price to meet the smaller market or to relist at a "better" time. Well positioned rentals are being snapped up, and six monthly leases now seem to be the favoured norm as rental rises finally play catch up after a long period of stagnation.

So what do we all think constitutes "certainty"?
How long before buyers recognise the current period for what it represents?
Opportunity. It's certainly gloomy out there

Exactly.........How do you pick the Boom and the Gloom?

Rarely can someone pick the top, or the bottom of a cycle.

Is the glass half full or half empty?

It all comes down to each person doing their research and looking at your own risk profiles.

I try to follow the old adage of "Supply and Demand" and buy properties which I believe are limited in supply due to "location" and will always be high in demand. This generally ensures excellent capital growth and good rental returns.

I do not follow the "SHEEP MENTALITY" that is largely driven by the media.

I for one am buying at the moment - on the Gold Coast.

Interested in who else is buying and in what areas.

Best of luck to everyone

BUNDY

Hi Bundy

I like the way you think- a positive attitude goes a long way towards action.

How's the GC market? I have heard mixed opinions at the moment- it appears to be slowing down?

Hi Jacque,
I have a couple of properties on the GC and I would say that whilst things appear to be slowing, it depends on where about on the GC we are talking. Take Coomera, which has done great things over the last 5 years. It is expected to "slow" to something around 25% over the next 3 years...compared with closer to 150% over the last 5. My other place is in Surfers and again, whilst it may slow, those sorts of locations will provide good returns in the medium to long term. I presently don't need to purchase more property but if I was in the market, now would be the time I would be snapping something up. For Bundy's info, his namesake and a place 10 mins from Bundaberg, namely Bargara, are 2 places I expect big things from over the next 5-10 years. I am a firm believer in "do what the majority (about 95%) isn't", so buy now and hold and it should all be good.
Paul

My pessimistic view / analysis of why buyers are less in gloom

Skill shortage and unemployment, yes they are historically lower but those are past numbers derived based on how the the economy was last quarter, released after a month or so. During this time economy can change due to various factors external markets, credit markets etc, resulting in lower demand by employers as supply is excess, consequently increasing the unemployment and reducing the skill shortage.
In addition to increasing price of various day to day commodities resulting in less disposable income available for discretionary activity like saving for property / buying property. Ofcourse there will be exception to these scenario's especially existing property investors.
Change in credit market conditions resulting in higher premium for debt and bankers being risk averse even to high quality property or high quality assests. The risk averseness can be due to risk policies of the bank / lender
Rising rents is dependent on market, if market can afford market will pay its not unilateral where landlord feels to raise rent and they raise, yes the rental crisis is there that is because of multiple reasons, houses possessed by banks are vacant and not sold resulting in homeowners in the rental market but no property available situation, people with relatively high disposable income are migrating to areas where above average disposable income people were renting resulting in crisis. Also rents are not high compared to the price of property when it comes to holding for longer term (i know lot of people will jump on my throat for this) but still I am presenting my view

We obviously aren't in 'boom' or 'gloom' at the moment (or at least I think so). Many people seem to be predicting some sort of 'gloom' around the corner.

Would anyone else be considering selling now to take a profit and purchasing again shortly after to get a bargain? Or would this be a fool hardy strategy?

The costs of buying and selling property are very high - you'd need to be very sure of your strategy if you were trying to time the market like that.

Unless you want to get rid of a property for another reason; research now, gather spare equity, wait for bargins...

Hi Jacque,

The Gold Coast seems to be doing ok. Yes it has slowed down, like most areas, but I haven't seen any "DOOM". Most areas are holding quite well. Whilst there are certainly more properties on the market, and the sales rates have slowed it's just part of the property and investment cycle.

As Kitch01 mentioned, the newer emerging areas such as Coomera etc took off in the boom, they will slow considerably, but the properties which are in great locations and limited supply (more central to the coast, beachside, waterfront) etc are holding well.

The unit market seems to be ticking along with weekly sales, where as the high end of the market $2m and over seems to have slowed. Primarily caused by to the slide in the stockmarket.

With ever increasing migration to the area, investors are sure to do well if they conduct their due diligence and research well. Like most places, there is always a bargain somewhere.

As mentioned previously, I personally believe there is good opportunities around at the moment.

Cheers
Bundy

I definitely wouldn't be selling now... from what I have been seeing and from my conversations with real estate agents. If you had sold in late 2007 you probably would have got a good/inflated price for your property in addition to a quick sale - with many properties clearing well at auction back in 2007.

However in the last 6 months the property market (at least in Brisbane) has slowed considerably, many investors are sitting and waiting, auctions aren't clearing, many properties are sitting on the market for weeks/months and more importantly there are A LOT of properties for sale and using the good old fashioned supply and demand equation - high supply and low demand equals low sale price...

That said, whilst it appears that many aren't predicting a housing price crash, I'm personally starting to think it might not be that unlikely. Obviously the housing troubles in the US and UK have been well documented, and many have said that the Australian property market is well insulated due to our financial system. However I recently heard on the grape vine that a couple of the big Australian property development groups have essentially put their construction/projects on hold until the second half of 2009, because they believe that demand in the back half of this year and the first half of next will be that bad that it isn't worth their time.

I found it quite amazing that such big groups that make their money from property investments and projects are actually opting to stay in cash until conditions improve...



To me that is a definite sign that times are bad, and I mean you only need to look at how LPTs have faired on the ASX of late to see that many of them have fallen significantly further than the general index, and whilst some of these falls can be attributed to weaker offshore property markets I can't help but feel that the Australian property market as a whole will begin to see some degree of correction.

I don't know how others feel but I reckon that considering these recent interest rate hikes by the big four banks will see great buying opportunities from September onwards until mid 2009, at which point the US will most likely have come out of their shallow recession, hopefully oil's speculative prices will have dropped back to fundamentals (assuming that the current prices have spiked based on speculation), and Australians will still be getting rich selling dirt to the BRIC developing countries, people will remember that there is still a significant housing shortage in capital cities and there may even be an outside chance of a official rate drop/s in 2009...

Me thinks, good times are coming! Lotsa money to be made in 2009!