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Finance in Five
117 Plays3 months ago
In this episode, we dive into the 18.7 year property cycle theory and question whether now is really the best time to buy or if it's all a big scam. We'll explore why it feels impossible to buy a home right now and predict if a major property crash is on the horizon.
Join us as we discuss the importance of time in the market versus timing the market, backed by real data and insights. Is it better to buy now or wait for the perfect moment? We'll break it all down for you.
Visit HunterGalloway.com.au for a free assessment and more info on how we can help you on your journey to homeownership.
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Transcript
Understanding Property Theory & Market Predictions
00:00:00
Speaker
Is now really the best time to to buy or is all a big scam? We're gonna be ripping apart the 18.7 year property theory, exposing why it feels like it's impossible to buy a home right now and predicting when or if the great property crash is gonna happen. Let's dive right in.
Navigating the Australian Housing Market
00:00:14
Speaker
Welcome to the Buying Your First Home Podcast, your personal guide through the Australian housing market. Here we tackle the big questions and the small details that come up when buying your first home. From financial prep to finding the right neighbourhood, we're here to ensure that you've got all the knowledge at your fingertips. So let's take the first step towards unlocking the door to your new home.
Timing the Market vs. Time in the Market
00:00:39
Speaker
So Simon, I came across this article on Reddit talking about Melbourne's falling dwelling prices and if now, is it bad times for you buying a property? So it kind of begs the question, when is the right time to buy a property? Is it about timing the market or the time in the market? You know, Jayden, this is something that rings true almost eternally for real estate people. They see the property prices start to change and they think, well, prices are starting to soften. If I buy now, then they'll go down. And I don't want to be owning a house that's worth less than what I paid for. And they're falling into a pretty common trap here, which is trying to time the market versus just spending time in the market. Really, real estate is a game about patience. It's not about day trading and trying to find the
00:01:21
Speaker
buy low and sell high over the course of a day or a week or a few
Real Estate as a Long-term Investment
00:01:25
Speaker
months. It's a game of longer time periods, you know, five years, 10 years, or if it's your family home, you might have it for the rest of your life. There's some interesting data here to show anybody who's wondering whether they should try to time the market that it's possibly not the best idea. Wait, so you're not saying, you know, it's best to buy a property in summer because it's got the best price gains or what are some of the data showing us? Property is like a long term game, as we've said. So, you know, over the course of, say, 40 years, you know, Melbourne, Brisbane, Sydney, they've all shown 7% or 8% growth over this time period. So property prices do tend to go up over time. We've never really had a proper housing market crash in the country really in the last 30 years. Yeah, you might find you can econ it extra like half a percent or 1% by buying at the exact perfect time, but you risk
00:02:13
Speaker
waiting too long by the time the market changes, it might not be changing the direction you hope. And then you're left trying to catch up to the new price point, which is a lot of lot of people have seen over the past few years. Yeah, well, well located properties in some of these cities have actually more than doubled in a 10 year period. And for the sake of clarity, a crash is defined as anything more than a 20% drop. And even in the recession, we had to have property prices only would pull back about 8 to 10%. So it's pretty wild. But I guess that comes back to the point of property market cycles. There's not every location is the same not every market goes up and down up and down like a constant like a metronome each state has a property cycle and with periods of slower and faster growth it's not up and down it depends and it can be a bit of a jagged sort of saw to it sometimes and it can be influenced by various cycles and economic factors the government policies interest rates,
00:03:01
Speaker
ah you know other immigration has had huge impact on these property prices and these cycles.
The Property Cycle Explained
00:03:06
Speaker
In terms of the property cycle itself, there are sort of these four stages, right? So there's a period of where you're getting starting to get some growth, and you'll have the boom period, and then you'll have the top of the market, and then you'll have the decline. And they're kind of depending on, as you said, where you are and what the the current economic conditions are, the exact time that each suburb or area spends in each stage of the cycle isn't really the same. There is some degree of predictability. The only question is no one knows exactly when they're going to transition from one phase to the next. So the way to really protect yourself and strategies for when you're looking these properties to make sure I guess if you're not going to sort of buy it and instantly drop is is really focus on your time horizons. We've talked about this before if you're trying to buy and getting in six months.
00:03:48
Speaker
if you're gonna need to move out of the home within two, three years, it might be too short based on the property cycles. But even taking a step back from that as far as asset selection and looking at types of properties, what are some tips, Simon, that you'd sort of suggest when you're focusing on particular areas? I guess in terms of assets and types of properties, consider your longer term needs and what you might be looking for in your lifestyle a few years into the future as well. So if you're buying for the home you need right now, but you might be starting to plan on having a family, which means you might need a few extra bedrooms, then you might consider building that into your buying plans if you can afford to do so. I mean the other alternative as well is if if what you can afford now is an apartment, looking to buy that now to live in to capitalize on the equity gains that you do get and then use that equity to buy a house to live in when you do build a family and keep the other one as an investment. That's another strategy that
When is the Right Time to Buy?
00:04:37
Speaker
you can use. As far as affordability and repayments, keep in mind that interest rates at the moment
00:04:42
Speaker
you know be they sort of six to seven percent if you're hiring in the investment scale are higher than recent years but still historically low so if you want to build a little bit of fat there what's crazy to think is that even historically property values have risen even periods of higher interest rates you know historically like I said these are sort of the average almost but long term previously they were even higher than this the Reserve Bank has indicated that a neutral neutral cash rate is actually slightly below where we're at the moment but you want to keep in a bit of buffer there if you can. I guess really the the key takeaway here to think about is the right time to buy property is when you're ready to buy. Everything else before your ducks are lined up, or if you're already ducks are nowhere, whatever the phrase is, if you've got the the budget and you've got the deposit and you feel like you know the place you want to buy in and you feel ready, then that's the right time to buy. The people who try to time the market and try to wait until it's just the perfect time, they often tend to miss the mark. And the way I would look at it is this way.
00:05:37
Speaker
If you happen to time the market and you're lucky and you buy it the very trough and then property prices rise like they have been, you know, crazy amounts in a couple of years, that's like an added bonus, but it shouldn't be your real intention when you're looking at buying a home to live in. Which brings us to our next section, Simon. Are you better to have just bought earlier? So I guess it's falling on from this with the changing landscape. Speaking with lots of couples, um you know people that contacted me back in 2021, they left it and thought, well, we're going to wait for the market to drop down. And it's obviously done the opposite. This was an interesting piece of research that you sort of looked into.
Deposit Dilemmas: Buy Now or Later?
00:06:12
Speaker
It's like, if it's better to actually just get in sooner with a smaller deposit, or wait and try and build up a 20% deposit, for example, borrow less, have lower payments and and be more comfortable. what What did the data say? I mean, if you look at the data from the last two or three years, absolutely the people who maybe took a bit of a leap of faith and
00:06:30
Speaker
bought with a lower deposit amount and maybe did deal with a bit of financial stress in the short term. you know They're doing pretty well at the moment. you know There's there's ah been a lot of property growth in a lot of places around Australia. you know There are stories that you've told me, Jayden, about some of your clients who bought a property six months ago and it's worth an extra hundred grand. If they'd waited and they they hadn't bought to save that extra five or 10% to get to the 20% deposit, they would be the ones who were looking to buy that property that's now worth a hundred grand more. Certainly in the last few years, it's been much better to purchase as soon as you can, including getting things like Wendy's Morgan insurance if you're not
00:07:10
Speaker
eligible for the family home guarantee or the first home guarantee. And there are, like you said, risks and benefits. So if you're getting in with a lower deposit, you're obviously borrowing more. um It has more risk if the the market comes off. But if you're buying a home that's going to be right for you over the next five or eight or 10 years, then you should be able to outlast the cycle and and carry it through there. But you want to have that stable footing, have the stable financial base there. to make sure you're comfortable if rates were to go up in the future. And I guess in terms of future outlook for rates, I don't think anyone's predicting any major rate rises in the short term. The rates might stay steady for the next little while, but it's unlikely we're going to see any major bumps there. So if you are
00:07:48
Speaker
thinking about buying and you've got that minimum deposit that you would need to start looking, I'd probably suggest having a chat to to one of the brokers at Hunter Galloway. They can give you some ideas about how you can plan for this financially, see what you're eligible for, and potentially you can get into a home earlier and then you reap the benefits as time goes on. So our next article, Simon, why first heard buyers are choosing to buy and live
Regional Buying: A Smart Move?
00:08:10
Speaker
regionally. I thought this was a bit of a trend, obviously, during COVID when people could work remotely. Everyone was trying to get out of the cities in particular. Melbourne with some pretty harsh lockdowns there. um But I'm surprised that that this trend has kept up with regional Australia. What's what's happened here and what's been the influence? I'm i'm assuming affordability has probably played a pretty big part with this. I think affordability is probably the number one thing here. you know If you're comparing in Melbourne, for example, the median house price is ah over a million dollars. In regional Victoria, the median house price is about $560,000. So you know basically getting twice as much bang for your buck if you're willing to to live not inside of the central Melbourne area.
00:08:47
Speaker
And there are similar things in, say, Sydney, where the median house price is 1.6 million or over that. And regional New South Wales is about $735,000. Not far off being a million dollars cheaper if you're willing to live regionally rather than in a capital city. There's definitely better value for money there when you're looking regionally. And I think there's also that step change where you can potentially buy a house for what you would pay for an apartment really in Sydney or Melbourne and some of those other cities. But I think you had a case study there that kind of illustrates that, right? Yeah. So this was Jess and Ron Newcomb. They wanted to buy in Melbourne originally.
00:09:22
Speaker
but they looked at what they could get in Melbourne and they really wanted something a bit bigger, a bit nicer. So they opted for a house and land package in Charlemant, Geelong for $670,000. It is technically regional, but it's it's only one and a half hours from Melbourne CBD and I guess, comparing it to Brisbane, it's It's one and a half hours to the gop from the Gold Coast to Brisbane on a good day, or ah on a regular traffic day, so doesn't even it's not even really that far in order to reap the benefits. So they're getting a four-bedroom house with a backyard and a double garage, and in the Melbourne, they would have had a two-bedroom townhouse or unit. Much more bang for the buck for sure.
00:10:00
Speaker
Yeah, I think the definitely the lifestyle and the flexibility to regional make sense. over the yeah know Looking at previous cycles, capital cities tended to have stronger long-term property growth just because of the population increases. But we are seeing a bit of a change with regional areas with new developments, a bit more diversity of housing stock. So it would be interesting to see if there's increases for regional areas for that population that that could lead to further growth. um And I suppose if there's any changes to work from home, like there's been some of the bigger banks and bigger corporations that have started to restrict work from home, ah which I think could have an impact on this because it's really reliant in some of those really remote areas where there's not yeah like a one horse town. If you're going to long reach it further away, it might be dependent on farming and different things. So if you're going that far out, just keep that in mind if if you're sort of looking at some of those regional cities. I mean, on that note, i'd I'd say that any company that wants to force people back into the office is probably fighting a losing battle. in the long term. you know that I work from home a lot of the time, and like if if I was forced back into the office, I'd probably be looking for a new job, and I think a lot of people feel that way. I saw another article unrelated to property and finance, which was basically you know the workers have decided. People want to work from home when they can, and so if anybody does have a business out there and and wants to force people back into the office, be prepared to find some new people to work for you. On that subject, Jayden, I just thought it'd be interesting
00:11:22
Speaker
for anyone who's considering like, well, sure, it's affordable in the regional parts of Australia, but like how affordable is it? There is a few towns here that you can buy a house for for a lot cheaper than you can in any capital city. If you aren't really attached to like a city lifestyle, these are definitely worth taking a look. I mean, the first one here is is kubipiti. So anybody who knows about Australian Opals would probably have heard of kubipiti. And it's it's pretty unique because like people there actually live in underground homes because it's a very arid and like almost it's a desert kind of climate. You can get a house there for a median of $80,000. So if you have a 10% deposit for a house in Kuwait PD is $8,000.
00:12:05
Speaker
Insane. And there's similar things in regional Queensland. There's Collinsville, 160,000 median house price, 10% plus the 16,000. It's a small mining town in the Whitsunday region. yeah that There's a whole bunch of other dice art, which is ah a bit of a mining town. I'd say the cave that I'd attach to these, like I remember clients that bought in dice art, um before the GFC when there are mining towns in there. And some of those properties were selling for upwards of $600,000, $700,000. So definitely do your research and and and you know make sure if you're buying there, you probably want to hold it for long term because also they're they're very cheap, but the volumes can be thin. So you might
00:12:45
Speaker
take a while to sell your house if you're trying to get in and out quickly or just buy a home just to have bought a home with you know an $18,000 deposit. So we'll we'll include a bunch of there. There's you know Broken Hill in New South Wales as well, another icon iconic mining town and a bit of yeah lots of history there, but definitely due diligence because the numbers on the page are one thing, but ah you know having a safe investment as well, that's got some of those fundamentals of the population growth and jobs in
Market Trends & Economic Influences
00:13:11
Speaker
the future are important to look at too. So on the subject of like making good investment and in terms of the housing market. I thought it'd be worth just, as we do most weeks, just covering sort of what's happening with the the market and where things are going. First thing is, according to a recent report from CoreLogic, is that national housing value growth growth has slowed from 0.7% to 0.5% over the past month. There is that little bit of a slowdown in prices, which is more pronounced in expensive areas
00:13:39
Speaker
and for houses rather than units. But Melbourne and Hobart are the only two capital cities that are actually seeing declining values. Everywhere else, it's just a bit of ah a slowdown in the pace of growth. Which is good. You can't just keep growing it. I think Brisbane houses were at 15% or 12% units were at 15%, 16%. It's just unsustainable because wages aren't going up at that pace, um which we've covered in previous episodes. so yeah know that there's Obviously that factor, the other thing that's making things difficult is that the cost of construction is expensive, that persistent inflation is is still reducing more properties being built. so
00:14:14
Speaker
That's not not a great, it's a bit of a perfect storm really for the property market, but we are seeing some increased stock levels, which is causing some of these prices softening out, so there's more properties for sale. That's getting filtered out, but still all-time shortages like we've covered previously, right Simon? Yeah, for sure. I mean, I think we've probably hopped on about the the housing stock levels and what needs to be done about it. quite a lot recently. But yeah, it's just the the market dynamics are are always changing, which is why we like to cover this sort of thing. I'd say in the future outlook, if you are looking at buying, it's likely that growth rates are probably going to continue to soften to some degree, especially if interest rates remain high. But there is that fundamental supply demand mismatch, plus the
00:14:56
Speaker
you know immigration that is also sort of propping up the demand side as well. I think we'll kind of have to see what happens with the ah the June quarter inflation data, which is what the ah RBA will be using to decide on what they're going to do with interest rates. and That's probably going to dictate a little bit about where the market is going to go. If we see high levels of inflation, then that means that we're likely to have a delay in the drops in interest rates, which will put a a few people off of buying. but Overall, I think as always, there's different variations in different cities and different sub markets of cities. I'd say that we're not going to see a massive
00:15:29
Speaker
runaway market as as the Australian market as a whole though in the short term at least. So wrapping up Simon, Patience makes a good property investment I suppose potentially. So talking about timing versus time in the market, I think it's it's it's pretty obvious there that yeah it's not important to perfectly time the market. It's like trying to buy stocks. Do you buy Kim Macquarie Bank. At this balance, you try and wait for it to get back down to what it was 10 years ago. Like I think the reality is in the property market, with the government support, with all the fundamentals underpinning it, they're just the lack of supply, restricted construction, immigration growing population, it looks unlikely that there's going to be any major crashes there ah in in the sort of short term. So it's a matter of then we'll take a zoom back and instead of trying to analyze the market, looking at personal personal situations saying, well, is my job secure? Have I got a good deposit?
00:16:21
Speaker
Do I want my own place that I want to be able to settle down with and am I going to spend the next and five plus years owning that property? Then yes, and it could make sense to to have a look at buying a
Affordability & Lifestyle in Regional Areas
00:16:31
Speaker
home there. At that next point, though Simon, interestingly, yeah, if if you can get in sooner, when should you have bought a home? It probably sounds like as soon as you can, right? Yeah, it's a bit what they say about, you know, the best time to planetary was 20 years ago and the second best time is now. and Looking at the recent data, it's certainly shown that any people who have taken the plunge and bought even without the ideal deposit amount, they've done pretty well out of doing so. And I'd say that it's, in general, the trends are showing that getting into the market early, as soon as you can get onto that property ladder, in the long term, you'll be rewarded for doing so, for sure. And on that note, I think, you know, even that idea about moving to regional areas due to affordability, I mean, we covered some pretty ah out there places like Kuberpiti, but the point remains is that a regional doesn't always have to mean
00:17:16
Speaker
like the middle of nowhere. There are sort of satellite towns that are pretty close to the capital cities that can also offer, like I said, more bang for your buck and without really sacrificing too much in terms of lifestyle as well. Something just to consider if you're finding that the prices for the types of properties you want in the areas you want are not really matching up, then banning your search and seeing what else is out there is one way to to get a head start on that. And that's it for today, guys. If you need any help with the finance, hit us up at huntergalloway dot.com.au with a Home for Homebuyers Across Australia. And make sure you join our community. We've just launched a school community where we're doing weekly Q and&A's, answering any questions you might have and helping you out with anything on the home buying journey. Until next time, guys, we'll see you later. um