There are fewer properties available for sale, and house prices are falling.
According to RP Data, the March quarter saw a 2.1% drop in house prices after a 1.4% drop in January. Tim Lawless is the national research director and says that the market’s housing stock does not move quickly. Volumes were 18% lower than the 5-year average in February.
“General market conditions remain weak with plenty stock for potential buyers. He stated that there are now higher levels than usual of vendor discounting and properties taking longer to sell.
Lawless claimed that the shrinking volume was due to consumer caution at a high level.
“The higher cost of living and debt consolidation remain at the forefront of consumer’s decision making which is reflected in the high household savings ratio and low transaction volumes for housing,” he commented.
Some buyers are reluctant to sell their properties in order to build equity or save money. Others wait to see what the market does over the next 12 mois.
SQM Research just released a report suggesting that prices are not at the lowest level.
“The market is falling and is likely to fall at least 5% this year as an average for the capital cities,” SQM managing director Louis Christopher said. “We are most bearish on the Gold Coast and Sunshine Coast markets. Brisbane, Darwin and Perth also appear to be in significant downturn.”
Although the firm had predicted a decline in sales of property, it couldn’t predict when that market would rebound.
“At this stage it is difficult to determine when the market will bottom. Most likely it will occur shortly after any announced interest rate cut or significant federal government stimulus in the market place, similar to the First Home Buyer’s grant boost release in late 2008. If inflation is high it is possible that the market will end without any interest rate reductions or government stimulus. At this point in time, consensus estimates suggest only a modest to moderate rise in inflation,” he commented.
If you’re considering buying property at the moment, there are some good reasons to make your move now rather than wait for further decreases in price. These are:
1.)   Competition – at the moment there are fewer buyers than properties on the market. Waiting for low prices to drop further could mean you lose out to potential borrowers.
2.)   Rising rents – In the grand scheme of things, a drop in house prices of $10K-$20K means little to your monthly mortgage payment. For a 25-year mortgage worth $250K, you would need $425 per week in monthly payments. A $270K loan would need $460 per week to repay. These can add up quickly and home buyers need to weigh this against possible rent increases and time lost in building equity in their new house.
3.)   5-year rule – If you’re planning on living in your new home for longer than five years, chances are you will ride out any significant downturns in price and by the time you are ready to sell again, the property will have held or increased its value
You might wait until the market recovers completely before you make any major changes. You might want to consider these reasons:
1.)   Price of your property – if prices in your neighbourhood are already dropping, you might want to wait it out to ensure you see a good return for your investment.
2.)   Less than 2 years – if you’ve lived in your current property for less than two years, you probably have not had enough time to build up equity in your home to make it worth paying the fees associated with buying a new home (which would negate any savings achieved by purchasing at the bottom of the market).
3.)   Uncertain financial situation – if you have any doubt about job security, you’d be better off riding out any price fluctuations.