With property prices seeing large upswings and downswings over the past few years, many aspiring homeowners and property investors are usually trying to wait to time the market.
While in theory, you want to buy when prices are low, in practice there is one key factor that most people often overlook that significantly impacts your ability to buy.
Interest rates
During the last boom in property prices, which was driven in a large part by interest rates that fell to virtually zero, prices were high, and many people were unwilling to buy at those prices. At the time, with fixed rates sitting at around 2%, you could borrow $1 million and you only needed to pay back $400 per week in interest. This meant that it was far easier for people to borrow. Of course, there were other factors to consider, such as the buffer rates that are applied to loans, but overall, the cost to borrow was low.
Fast forward to today, and now we have seen prices decline off those highs, and once again, that was driven by interest rates. Interest rates for new borrowers are now more likely to be around 5-6%, which means that the interest you are paying is nearly three times what it was only a few years ago.
This has had the impact of lowering property prices, especially in some of the more expensive markets like Sydney. However, buyers have also seen their borrowing capacity slashed at the time.
So now, while it might be cheaper to buy, had you waited, you might not even be able to purchase the property you wanted because your borrowing capacity is also much lower now.
That brings us back to the question that I am asked all the time – when is the right time to buy?
My answer is always the same regardless of where the market cycle might be at. The best time to buy is typically when you can afford to do so. There is never really going to be a perfect answer to the question either because borrowers will always have different circumstances that will mean they will be able to borrow different amounts of money based on different income levels and lifestyles and everyone also has unique financial goals.
However, the biggest mistake you can usually make is doing nothing and just hoping for prices to fall back to levels that we had years ago. In reality, prices will continue to rise over the long term, and if you’re waiting for the perfect time to buy, you will be left behind.
When you are in a position to buy, you are far better off looking to purchase the best asset you can in the right areas and buy really well at a fair price. That’s going to set you up to benefit from the overall uptrend in the property cycle.
While there will be ups and downs in prices, the fact that interest rates play such a big part in what you can actually afford to buy means that trying to get the bottom of a market cycle might end up costing you more in the long run.
If you are interested in the above, feel free to reach out to a Henderson buyers agent today for more information.