The buyer's dilemma: to nab a bargain or wait it out

Downturns bring all kinds of challenges and opportunities for buyers. And like all downturns, the media tend to have a field day with the headlines. From dire banking economist predictions to median value reports, the constant barrage of negative news is nothing short of scary.

This current downturn is a little different to the previous three downturns we’ve felt over the last eight years.

The 2018/2019 downturn was broadly led by a combination of restricted credit, banking Royal Commission woes and a Labour Government tipped to win heading into an election with negative gearing abolition promises. The surprise win of the Morrison Government saw sentiment turn on a five-cent piece. All of a sudden, our markets surged, but not for very long.

Covid’s 2020 downturn was fuelled by fear, yet things bounced quickly once the RBA moved the cash rate to emergency levels at 0.1 per cent.

Aside from tree-change/sea-change panic and work-from-home domestic changes leading a huge change in housing needs, buyers took advantage of the record low lending environment and borrowed hard.

The FOMO (fear of missing out) nature of the market was widespread, and many who were involved in property acquisition at the time will remember only all too well, just how competitive it felt to be trying to secure a property.

The 2022/2023 downturn was triggered by rapidly rising interest rates after an unprecedented period of rock-bottom interest rates.

Property owners, particularly those who were new to property ownership and mortgages, would have felt the full brunt of the interest rate hikes during this time. It is little wonder the correction was sharp.

Conditions, however, did appear to improve when inflation appeared to calm, and the RBA then eased the cash rate. Positive sentiment gripped quickly, and nationally we saw value growth peak across many cities and regions.

First home buyers wary

Fast-forward to now, and this downturn has hit hard. The combination of persistent inflation leading to rate hikes, global uncertainty and fuel shocks, and government tax changes have been a potent cocktail for the property market broadly. No capital cities have been immune, and values have dropped in most price segments.

For first home buyers, the absence of investors in the established property markets would seem to present an enormous advantage, yet it is visible in the data that they are not taking heed of the opportunity.

Why is this? First home buyers are notoriously anxious. Not only are their nerves frayed with doom and gloom stories in their reels and feed, but they also don’t generally have the financial reserves and buffers of upgraders, downsizers and investors.

They are often paralysed with fear, wondering if their asset will be worth less than their equity position in six months’ time. And this is a fair concern, because none of us can guarantee where our housing values will sit at a future date.

One buyer said to me recently, “I’ve been in the market for a while now, and I can see that I could secure a house in my budget that I would have been precluded from buying six months ago. But I don’t want to catch a falling knife.”

And social proof plays an enormous role when it comes to buyer confidence too. It doesn’t feel comfortable when auction participation is low and a property passes in. It is human nature for buyers to ask themselves, “What’s wrong with it? Nobody else wants it. Perhaps it’s a lemon, or it’s overpriced.”

That is the challenge with low auction clearance rates and longer days on market. The property data can undermine the buyer’s desire when fear creeps in.

The best advice I have for buyers who are keen to buy now is to understand what drives downturns, and recognise the leading indicators that signal a market reaching its nadir. None of us can perfectly time the bottom of the market, but with the benefit of hindsight and history, we have great data to draw on now.

Listings and losses

In Australia’s housing market history, we have not had three consecutive downturns in an eight year period before. The recent downturns are not faded in history, and data metrics are available for us to glean information from.

Listing volumes, particularly when segmented into new listings, total listings, and old listings (greater than 180 days) are valuable data points, but not on their own. Understanding where days on market and auction clearance rates fit alongside these volumes tells a more insightful story. But it’s buyer behaviour, vendor appraisal activity and agent enquiry that is harder to track and very helpful in tracking sentiment changes.

Nervous buyers owe it to themselves to attend home opens, listen to agent dialogue with other buyers, and track attendance rates and bidding activity.

When markets shift from bear to bull, it can happen very quickly. Being close to the coalface is every buyer’s advantage.

Buyers who worry about value losses need to be reminded that a loss is only crystallised if a sale follows. Otherwise, it’s just a loss on paper.

Never has the importance of selecting the right property been so high. A property owner with a great property is far less likely to lament median value decreases when they are happy about their selection itself.

Times like this should not be so much about buying a bargain. They should be about buying the right property.

Lastly, catching a falling knife is a powerful metaphor, but again being priced out of a market that you could have afforded to buy into six months earlier would have to hurt more.