John McGrath - When is the right time to buy in this market?
Two years ago, the median value of a Sydney house was $995,000. Today, it’s $1.41 million. In Melbourne, the median house price in February 2020 was $800,000. Now, it’s $1 million.
That sort of growth simply can’t go on forever, and over the past year we’ve seen the pace of growth in both Sydney and Melbourne slow down. Last week CoreLogic data for the month of February was released, showing the first fall in Sydney home values since September 2020 (by only 0.1% though) and no growth at all in Melbourne.
This might have some would-be purchasers worried that they’re buying at the wrong time. Are prices about to go down? Will I pay too much? These are the questions that can keep new buyers up at night. But let me reassure you. The only factors that should be driving your decision to buy are personal needs and affordability. That rule applies no matter what the market is doing.
While your home is indeed a financial asset and for most people, it’s also their biggest store of wealth. So, it would be great to time your purchase perfectly to maximise your capital gains. But the reality is that no one can pick the top or the bottom of markets – even the professionals.
A home is a home, first and foremost, and a financial asset second. So, let your personal needs guide you. Need to upsize for a growing family? Need to downsize because the kids have left home? Go ahead and do it. Market trends really don’t matter. What does matter is holding for the long term.
If you do end up buying at the end of a growth cycle, then reality is you might need to wait a while to achieve some decent capital gains. But does that matter if you’re going to be living in your new home for the next 10 or 20 years regardless?
If you’re in your 20s or 30s and buying your first home, then you haven’t yet seen how price growth in Australian property really works. The market is not always this exciting, and growth certainly doesn’t occur in a straight line.
Over a typical decade, you’re likely to see one boom or strong growth cycle, which we’re in now; one slower period when prices can sometimes pull back; and a bunch of years where not much happens at all. Prices tend to grow at an average rate of 0-5% during these years.
That’s why you have to hold for the long term. You have to wait out those slower years in order to be rewarded when the next major growth cycle begins. That’s when healthy capital gains are made.
I’ve been in this business for 40 years and let me tell you, whatever you pay today is going to look cheap in 10 years’ time. That’s just how it is with Australian real estate. So, forget market timing. Get the location right, only buy quality, keep within your budget, and most of all enjoy your new home.