Why the current property downturn could be a buying opportunity

After a five-year property boom that saw news media reporting almost daily on soaring prices, affordability and the challenges buyers faced finding a home, the focus has rapidly shifted to what’s no longer happening.

We know dramatisation and fear attract attention in newspapers and electronic media broadcasts. That’s certainly been evident over the past couple of months.

Having experienced eight real estate cycles, it’s clear that what’s happening now is a familiar part of the process.

Five years of solid property price growth must eventually come to an end, usually driven by rising interest rates. The market then enters a correction phase, giving back some of the gains achieved during the boom.

That’s just a normal market fluctuation that shouldn’t trigger alarmism. Most people selling today are still making handsome gains compared with their purchase price. They’re now simply surrendering some of those gains as the market adjusts.

Victoria has been hit a little harder by factors outside the normal property cycle, including high land taxes and vacancy taxes affecting properties such as holiday homes. Otherwise, what we’re seeing is a familiar phase of the market.

Buying opportunity headlines are missing

What the media often overlooks is the opportunity for purchasers. Buyers arguably have their best opportunity in five years.

The underlying fundamentals remain strong in much of Australia. We simply aren’t building enough homes to accommodate the population. That supply and demand imbalance provides a solid foundation for the market and is likely to continue supporting housing demand for more than a decade.

There are, of course, shorter periods when economic conditions put the brakes on.

Currently, the main pressures are cost-of-living increases eating into household incomes, higher interest rates and Federal Government tax changes affecting property investment. Together, these factors are weighing on consumer confidence.

But interest rates move in cycles too. Look at their journey over the past 50 years and it becomes clear that what goes up eventually comes down.

Unemployment is ticking up, and the Reserve Bank may decide another rate rise is necessary, or it may hold. The outcome should become clearer as we move through the remainder of this year and into early 2027.

After four rate rises, however, the market is getting closer to the top of the tightening cycle. The questions are how long rates remain at these higher levels and when reductions might begin.

By this time next year, the conversation could be very different. Meanwhile, the underlying need for housing will have continued to build as would-be buyers sit on the sidelines.

As confidence returns and buyers begin to anticipate falling rates, demand could surge back into the market. That is why the current correction may offer an opportunity to buy before the next upswing gathers pace.

Yet many people reading today’s headlines will be too fearful to act.

Pragmatic sellers are already prepared to accept less than they might have expected three or more months ago, having banked gains from the preceding boom. As the prospect of rate cuts gets closer, sellers may become less flexible, expecting stronger prices to return.

Taking advantage of the current conditions requires a degree of bravery and conviction.

Price discount can outweigh higher interest costs

Consider a buyer looking to purchase a $1.4 million property with a $1 million mortgage.

It’s common to hear prospective buyers say that a one percentage point increase in interest rates will cost them another $10,000 a year, so they intend to wait until rates fall.

What they may be overlooking is the potential saving from a lower purchase price.

If the property falls 5 per cent in value, it could be available for $70,000 less than it was worth several months earlier. A substantial 10 per cent decline would mean a $140,000 saving.

The media tends to focus on the extra $10,000 in annual interest costs, rather than the potential $70,000 to $140,000 reduction in the purchase price.

Of course, if interest rates begin falling, mortgage repayments will ease, but property prices may also start rising again. Buyers who wait could miss the opportunity to secure a lower entry price.

The early signs are already there, with more investors appearing at open homes as they look for value.

Many are gravitating towards properties priced below $1 million, where higher interest rates have affected first home buyers and lower-income households, reducing competition and increasing the choice available to investors.

Next cycle rewards those looking beyond headlines

None of this means every property is a bargain or that prices cannot fall further. Buyers still need to assess individual properties, their financial capacity and the risks of holding an asset through a downturn.

But the current market should be judged in context.

Australia’s underlying housing shortage has not disappeared, and neither has the need to accommodate population growth. Higher interest rates and weaker confidence have temporarily restrained demand, but those conditions will not necessarily persist indefinitely.

For investors who can afford to buy and hold, the period before confidence returns may offer opportunities that become harder to find once the next upward cycle begins.