When to buy property in a slowing real estate market

Buy low, sell high. It’s the mantra for any asset transaction — and real estate is no different. Short of investing in a crystal ball, switched on buyers study market cycles to get the best impression of what the medium to long term holds.

Past behaviour of a suburb or property type is one of the best indicators of future behaviour at a micro level, but there are also a number of macro factors to be taken into account.

Watching the ticking property clock

Australian real estate travels through property cycles, which traditionally last between seven to 10 years. However, individual cities and towns (and then suburbs or property types within those locations) can run an independent race from the rest of the country.

National property valuation advisory firm Herron Todd White publishes a monthly ‘property clock’ which takes a regular snapshot of where house and unit markets are sitting within the cycle, indicating a market peak, a bottom, and the transitions in between.

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“The property clock is meant to be a kind of ready reckoner, so you can make a swift general comparison about what different markets are doing,” says Kevin Brogan, National Director, Group Risk and Compliance of Herron Todd White.

Although common sense might suggest it would be wise not to buy in areas sitting at the peak “12 o’clock” position, Brogan says it’s not always that simple.

“If somebody in Sydney is looking at a property in Adelaide, they might see it sitting in a peak position, but they’ll also look at the price point and think ‘Well, I don’t mind because Adelaide looks very affordable’. A local might feel differently.”

By the end of 2022, Sydney and Melbourne sat on the declining side of the “property clock” after reaching their peak positions in February 2022 and December 2021 respectively. Purchasers might be temped to take a “wait and see” approach, but there is no one-size-fits-all answer.

“You’ve had an interest rate environment putting pressure on buyers, but if there’s sustained demand in the market because of economic and population growth, that’s going to have a positive impact across different market segments,” Brogan says, adding that certain property types can also buck the cyclical trends.

“Vacant land and properties requiring refurbishment have struggled because of escalating building costs and concerns around the durations of projects.

“Conversely, renovated properties are selling quite well even in Sydney and Melbourne. So it’s very tempting to just look at a geographical market — and at a high level it’s quite useful to do that — but if you’re on the verge of making a decision, you need to look at the sub market too.”

Timing the market…

Waiting for the market to hit rock bottom might feel like the right buying strategy, however chief economist for Ray White Group, Nerida Conisbee, warns even schooled experts can often only pinpoint the trough in retrospect.

“Markets can move really quickly. At the start of the pandemic some economists were suggesting a 30 per cent decline, and then suddenly it turned around and we saw a 30 per cent increase,” she says.

Ray White chief economist Nerida Conisbee

From the first Reserve Bank official cash rate increase in April 2022, prices across many Australian markets started to decline after a short sharp boom, but just how long (and where) negative movement will be seen in 2023 depends on several factors.

“It’s been a slowdown that really had to happen because property was getting really too expensive,” Conisbee says.

“But what we’re seeing is quite different changes to property values depending on where you are.

“There’s such a diversion in geographic conditions, so much so that when people talk about a 20 percent price drop there’s absolutely no way that will happen across Australia. Even the market that’s most likely to see that drop would be Sydney because of the extraordinary gains, but it’s not going to be all of Sydney. Prices are certainly not going to drop to bargain levels.”

She added that since the recent price correction had been brought around almost solely by interest rates increases, once they stop the tables could turn.

“Once we start to see interest rates peak, potentially around March, that’s the point at which prices will start to stabilise,” she says. “And if you look at other factors that typically lead to price decline, we’re actually seeing the opposite. Population growth is starting to ramp up again and migration is back.

“If you try and wait for the bottom, you could quickly find yourself in a dramatically different situation and you might discover you’ve missed the boat.”

…Or time in the market

It is a real estate cliche, but time in the market is often better than timing the market, says Brogan.

“Although timing can be important in terms of the transaction to enter the market, you also have to consider how long you intend to hold the property for,” he says. “If you’re looking for a quick in and out, then timing is critical, but if you’re looking to hold for a period of time, it’s a different story.

“Everyone loves a bargain, everyone loves to tell their friends how well they’ve done in any transaction, particularly with property.

“It’s only human nature to want to minimise your outlay, and that thinking won’t necessarily do you any harm. Unless, of course, analysis paralysis means you hold out or don’t act at all and you miss out altogether.”

Conisbee said the mistake many bargain-hunting buyers make in a declining real estate market is holding out too long only to jump in with everyone else.

“Of course it’s great to buy at the bottom of the market,” she says. “Ultimately though, if you’re holding on long term it doesn’t matter when you buy in a cycle. The best time to buy is when you find the right home in the right location at a price you can afford.”

For decades, Australia has leaned into its reputation as the lucky country. But luck, as it turns out, is not an economic strategy.

What once looked like resilience now appears increasingly fragile. Beneath the surface of rising property values and steady headline growth, the Australian economy is showing signs of strain that can no longer be ignored.

Recent data paints a sobering picture. Australia has recorded one of the largest declines in real household disposable income per capita among advanced economies.

Wages have failed to keep pace with inflation, meaning many Australians are working harder for less. On a per capita basis, income growth has stalled and, at times, reversed.

And yet, on paper, things still look relatively solid. GDP is growing. Unemployment remains low. But that growth is increasingly being driven by population expansion rather than productivity.

More people are contributing to output, but not necessarily improving living standards.

That distinction matters.

For years, Australia’s economic success rested on a powerful combination: a once-in-a-generation mining boom, a credit-fuelled housing market, strong migration and a property sector that rarely faltered. Between 1991 and 2020, the country avoided recession entirely, building enormous wealth in the process.

But much of that wealth is tied to property. Around two-thirds of household wealth sits in real estate, inflated by leverage and sustained by demand. It has worked, until now.

The problem is the supply side of the economy has not kept up.

Housing supply is falling behind population growth. Rental vacancies are near record lows.

Construction firms are collapsing at an elevated rate. At the same time, massive infrastructure pipelines are competing with residential projects for labour and materials, pushing costs higher and delaying delivery.

The result is a system under pressure from all angles.

Despite near full employment, productivity growth has stagnated for years. In simple terms, Australians are putting in more hours without generating more output per hour. The economy is running faster, butgoing nowhere.

Meanwhile, government spending continues to expand. Public debt is approaching $1 trillion, with spending now accounting for a record share of GDP.

The gap between spending and revenue has been filled by borrowing for decades, adding further pressure to an already stretched system.

This is where the uncomfortable question emerges.

Has Australia become too reliant on a model driven by rising property values, expanding credit and population growth?

As asset prices rise, households feel wealthier and borrow more. Banks lend more. Governments collect more revenue. Migration fuels demand. The cycle reinforces itself.

But when productivity stalls and debt outpaces real income, the system begins to depend on constant expansion just to stay stable.

It is not a collapse scenario. But it is not particularly stable either.

Nowhere is this more evident than in housing.

The National Housing Accord targets 1.2 million new homes over five years, yet current completion rates are well below that pace. With approvals falling and construction costs rising, the gap between supply and demand is widening, not narrowing.

Housing is also one of the largest contributors to inflation, with costs rising sharply across rents, construction and utilities. Yet the private sector, from small investors to major developers, is struggling to make projects stack up in the current environment.

This brings the policy debate into sharper focus.

Tax settings such as negative gearing and capital gains concessions have undoubtedly boosted demand over the past two decades. But they have also supported supply. Removing them may ease prices briefly, but risks deepening the supply shortage over time.

That is the paradox.

Policies designed to make housing more affordable can, in practice, make the shortage worse if they discourage development. The optics may appeal, but the economics are far less forgiving.

It is also worth remembering that most property investors are not institutional players. The majority own just one investment property. They are, in many cases, ordinary Australians using real estate as their primary wealth-building tool.

Undermining that system without replacing it with a viable alternative risks unintended consequences, from reduced supply to higher rents and increased inflation.

So where does that leave Australia?

At a crossroads.

The country can continue to rely on population growth and rising asset prices to drive economic activity. Or it can shift towards a model built on productivity, innovation and sustainable growth.

The latter is harder. It requires structural reform, long-term thinking and political discipline.

But it is also the only path that leads to genuine, lasting prosperity.

The question is no longer whether Australia has been lucky.

It is whether it can evolve before that luck runs out.

Paul Miron is the Co-Founder & Fund Manager of Msquared Capital.

When to buy property in a slowing real estate market

Property prices have fallen in many parts of Australia but have we hit the bottom of the cycle? And should you buy now?

As housing drives wealth and policy debate, the real risk is an economy hooked on growth without productivity to sustain it.