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.”

Australia’s housing crisis will not be solved by first-home buyer incentives or tax changes alone, with leading property figures warning governments must tackle supply constraints if affordability is to improve.

Speaking at the Kanebridge Quarterly Property Leadership Summit in Sydney last week, expert project marketing specialist Sam Elbanna, property investor and fund manager Paul Miron and property consultant Karla McNeice said that a lack of housing supply remained the central issue facing the market.

Elbanna, Director of CPM Realty with more than 30 years’ experience in project sales, argued that successive governments had focused too heavily on stimulating demand rather than addressing the barriers preventing new housing from being delivered.

“The misconception is that politicians think the way to solve the housing crisis is to drive demand,” he said.

“The reality is that’s not the way. This is a supply-side problem, and it needs to be solved on the supply side.”

Drawing on his experience in project sales, Elbanna said policies designed to help first-home buyers often had unintended consequences, pointing to previous grants that ultimately flowed through to higher property prices.

Instead, he said developers were facing increasing red tape, approval delays and rising costs, which were discouraging new housing supply.

“In the absence of stock, demand exceeds supply,” he said.

Miron, a Co-Founder and Fund Manager of Msquared Capital, said the housing debate had become overly focused on tax policy while overlooking broader structural issues.

He argued that affordability challenges stemmed from a combination of factors, including planning constraints, supply shortages, migration levels and interest rates.

“No-one can be 100 per cent certain on the real reason for property prices is going up,” he said.

“The reason why property prices are higher is a combination of interest rates, lack of supply, migration, vacancy rates and maybe taxes play a role.”

Miron was critical of recent federal housing policy changes, warning they could reduce the number of new homes being built and further constrain supply that was even highlighted in the budget.

He also highlighted the importance of the property sector to the broader economy, noting that residential real estate and related industries employed more than one million Australians.

McNeice, who advises developers on sales strategy and market intelligence, said understanding buyers had become increasingly important as affordability pressures intensified.

While affordability remained a major consideration, she said today’s buyers were focused on value rather than simply price.

“People are looking for value for money,” she said.

She said buyers were increasingly evaluating factors such as transport connections, walkability, nearby amenities and flexible living spaces that could accommodate changing family needs.

“What infrastructure is going on? Can I walk to the shops? Can I meet people at the local cafe?” she said.

The panel also discussed the mounting pressures facing developers, with Elbanna arguing that many projects become financially unviable from the moment a site is purchased.

“The viability of a development happens at the moment the site is bought,” he said.

He said rising construction costs, higher interest rates and overly optimistic feasibility assumptions had left some developers exposed as market conditions changed.

While acknowledging the growing number of smaller and first-time developers entering the market, Elbanna said property development required expertise across finance, construction, marketing and legal disciplines.

“It is actually a business that requires a level of expertise,” he said.

Looking ahead, the panel agreed opportunities remained in the market despite current challenges.

Miron said property should continue to be viewed as a long-term investment and cautioned against trying to time short-term market movements.

McNeice said success would increasingly depend on identifying projects that genuinely met changing buyer expectations.

Elbanna said affordable housing remained achievable, but developers needed to deliver more than just homes.

“We can provide affordable housing in this country,” he said.

“But we’ve got to wrap that affordable housing with the things that people want.”

As Australia’s housing affordability debate intensifies, the panellists agreed on one point: without a meaningful increase in housing supply, demand-side measures alone are unlikely to solve the nation’s property challenges.

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?

Australia’s housing affordability crisis is being fuelled by chronic undersupply, planning delays and rising development costs, as politicians continue to focus on the wrong solutions.