November 24th 2008
by Neil Jenman
The most common real estate question I get these days is: "What's going to happen with the market?"
My common answer is: "Why do you want to know?"
Another common question is: "Will the market get better or worse?" to which my common answer is, "It depends who you are and what you want to do."
It also depends on what you mean by "better" or by "worse".
If you're a buyer and the prices are falling then, surely, the market is getting better for you.
If you're a seller and the market is falling, it's not necessarily bad for you - especially if you intend to buy a similar property in a similar area in the same market.
If you happen to be buying a more expensive property in the same area in the same market, then it's better for you. You might be selling for a bit lower than you may have achieved a few months ago, but you'll be buying for a lot lower for the simple reason that the bigger the value the bigger the fall - and that means the bigger the saving for you.
So, all this talk about a good market or a bad market or a market crash or (and I love this next one) "the coming boom" is only relevant based on what each of us intends to do.
Basically, in any property market, there are four main groups of players. First there are those who are buying a family home. Second, there are those who are selling a family home. Third, there are those who are selling an investment property and, fourth, there are those who are buying an investment property.
So, let's have a quick look at each of the four groups and, as much as it's possible to do so, see how each group is affected by today's property market.
First, those who are buying a family home.
If you are a first home buyer this is a fairly good market for you, at least in comparison to how it's been over the past three or four years. The prices are lower. There are many more properties for sale. The sellers are more reasonable. And, in the property market, "reasonable" is another word for "receptive".
Make the sellers an offer and they're more likely to listen to you today. And listening is the first stage before agreeing.
And, remember, as the great investor Warren Buffett recommends, "Never be shy about making a low offer." The worst that can happen is that the seller will say "No". But the best could mean you get one of the best deals of your life.
Finally, of course, there are plenty of extra incentives to help buyers to buy. Up to $21,000 in a free gift from the Federal Government and good deals on stamp duty from State Governments is all good news for first time buyers.
In essence, therefore, the property market's pretty good for first-home buyers right now.
Second, those who are selling a family home.
Well, unless you're planning to sell your home and buy a mobile home and join the grey nomads for a few years, the market's probably not nearly as bad as you think (or you're being told). As mentioned earlier, if you are selling and buying in the same market, it doesn't really matter whether prices are booming, crashing or stagnant. It's all the same to you.
In essence, therefore, the property market's always okay for those who are selling and buying again in the same market conditions.
Third, those who are selling an investment property.
Well, now we come to the first serious signs of some people who are in serious pain. This is especially true for those thousands of (and please don't take this the wrong way) "mug investors" who swallowed the spiel about how real estate always goes up and how it costs "just a few dollars a week" and how "the taxman would pay for it". Yeah, well, now you know.
These poor sods are now getting a stark lesson in real estate reality. Their investment properties are costing them a heap more than that smiling salesman told them; and, now that they're trying to sell, they're realising that real estate does not always go up. It often goes down - especially when it's been bought from one of those property spruiking outfits (see our article on The Selling Machines).
If you're one of these investors and you are trying to sell your property and you can't get within Cooee of the price you paid, then, sorry, you only have two choices. Lose money or lose more money.
That's right, you can hang on to it and lose money each week and then sell it in a few months and lose more money or, the second choice, you can sell it now and lose money.
Generally it's best to remember this rule about dud investments - they rarely improve and the quicker you get rid of them, the sooner you can get on with your life. Ladies, it's like getting rid of a dud husband - you always wish you'd done it earlier.
In essence, the property market is very bad for those who are selling dud investment properties right now.
And finally, there is the fourth type of player in today's property market - those who are buying an investment property. It is these people for whom I save my greatest sympathy.
You are either very brave or very naïve or very stupid.
Right now, there are plenty of spruikers who'll tell you that "there's never been a better time to invest in real estate". That's total codswallop.
Anyone who has done kindergarten level maths knows that the 'numbers' are far from right for investing in real estate today.
Oh, sure, I can hear all the abuse coming my way now.
First, from those spruikers who are selling real estate (get it? They are selling real estate not buying it! Dur) and, second, those poor dear souls who have just bought an investment property and can't stand to be told that they've done the wrong thing. These are the people who are yet to realise that great real estate maxim: "You don't need brains to buy real estate."
For those who are investing in real estate right now, you are in a strange sort of predicament. You think everything's going really well but you don't realise what's ahead of you.
You're not going to like this, but you are what's known as "deluded investors". But, at least you're happily deluded. So, enjoy the feeling while it lasts.
And there you have it. Today's property market. The state of the market all depends on what you intend to do in the market.