To Buy Or Not To Buy

Hi Adam

Only you can decide whether you should buy right now or not.

Here are a few things I personally think:

If you are in it for a long-hold, it doesn't make much difference anyway.
There is not going to be a catastrophe whereby suddenly everyone is going to live on the street and leave the houses empty.
When everyone is afraid to buy, there can be some great bargains to be had, because the sellers are not blessed with lots of buyers competing with each other.  You could negotiate yourself a great deal.

Hi Adam,

Congratulations on getting to step 1 – pre-approved and deposit saved. This is a big feat in itself.

As to whether or not to buy – the answer to that question really boils down to your plans, timelines and personal circumstances.

For every statistic supporting the 'buyers market' theory there will be a statistic supporting 'potential bubble' theory. For what it is worth some of the disparity in positions has a lot to do with the two speed nature of our economy at the moment. Indicies for non-mining related industries such as retail etc are at all time lows, whereas those indicies in mining related industries are at all times highs.

On a related matter the imposition of the responsible lending legislation has had a marked effect on non-bank lenders. This along with the GFC and company and government responses to the GFC now means that some lending products up to GFC are no longer available. Banks & mortgage insurers are a little more circumspect with lending policies today. Having said that I also believe some of the big four are starting to relax some conditions slightly in an effort to increase their share of loans. Not that this should be seen to be a signal or even more relaxed lending to come. ASIC and legislation have put an end to that.

I am sure some of these people are now struggling due to excess borrowings through lax lo-doc and no-doc policies in existence at the time. Combine this with a high across the boards LVR and there is little wriggle room left for these people.

Similarly the Government's FHOG Boost scheme has created a number of households (read FHO who took advantage of the boost) who are under mortgage stress. These people largely did not have to save a deposit of any substance and were qualified when interest rates were as low as they have been for eons. Even with the bank's serviceability margins the rate used to determine serviceability was awfully low. Given these people had minimal deposit they have no behind them and any surplus cash they had on previous calculations is being consumed to meet loan obligations.   

Now all of this sounds like doom and gloom but rememember for every 'bad' signal there is an equally positive one.

Yes stock on the national property list is at high figures – certainly here in Perth current stock levels are at higher than average levels. RP Data recently reported a slight decline in stock available levels and a reduction in vendor discounting to effect a sale. So maybe the corner has been turned here in WA. Housing Industry and other luminary organisations like ANZ Bank etc continue to report a significant underlying shortage of property stocks and have projected for this underlying shortfall to continue.

Also countering the doom and gloom merchants is our national unemployment figures are below 5% and in WA just over 4% – now when I studied economics many years ago 5% was considered full employment. So, from an employment position, we are in a great position. About 3 months ago statisticians also reported an increase in the number of people employed full-time whereas up until then the unemployment figures were a little fuzzy as people took on fractional work to retain some salary in preference to being laid off.

Some of the dooms day merchants are making relationships between house prices and income levels. Both the ANZ and CBA banks and our very own RBA have largely debunked this relationship as the study underpining it is reportedly very simplistic. 

The outlook for short term growth in many markets is questionnable but investors with long time frames will go OK – you may need to consider something different to simply buying an off the shelf property – maybe consider something different. I believe Steve refers to these properties as those having a twist. 

Be aware we (the general we) seem to pay greater credence to merchants of doom than we do of others, equally qualified, often citing vested interests.

Ulltimately – indviduals need to make up their own minds, check your goals timelines etc and make a decision on what suits you.

Would totally agree with this comment. There will always be someone giving you are reason not to do it (property bubble, interest rates are rising, the tenants will trash the place etc. etc.) but if you complete your due diligence and the numbers stack up, I would say go for it.
I have just recently bought a new IP (settles in Sep) and was able to get it at a discount of about $20k because everyone else was sitting back just waiting.

Exactly! Completely I agree with you! The best ways to become better is start doing it.
In my opinion, you should buy.

We are unfortunately living in  a controversial world and that always allows media business to survive. Every single minute, there will be someone regretting that they haven't got on the bus earlier! So just get on the bus Adam!

I read a book a while back which was the biography of one of the richest men in Japan. His start happened when he hunkered down in his underground bunker as Hiroshima was being bombed. As soon as he could he started buying land and then held it and waited for stability which eventually came and he made squillions…….There is always the nervousness that accompanies having the balls to buy when everyone else is selling……….but i think his story absolutely demonstrates what can be achieved if you do your research then back yourself. It doesn't get more dire for the outlook of a property market than to have your country being bombed by atomic bombs and about to lose a world war.   This is pretty much Warren Buffett's strategy too and look where it got him.

If you do nothing you definitely gain nothing, if you do something and it fails, well you're no worse off…….but if it doesn't fail…..who knows….