Best Buys

WHEN IS THE RIGHT TIME TO SELL – July 2004

The tragedy with the property market is that you never know when it's peaked or hit rock bottom.

If anyone could have anticipated the boom NSW experienced through 2002 and 2003, we could all have been millionaires sipping cocktails around the pool at some sea-change destination, bought dirt cheap, way before ``sea-change'' was even invented.
Even now, while it's widely acknowledged that the great boom has in fact ended, there is still a raft of conflicting data about property prices.

Some figures show that house prices in the March quarter of 2004 actually went up, even though auction clearance rates are down and many real estate agents have reported price discounting.

Commsec head of quantitative equities research Ron Bewley says the Australian Bureau of Statistics March quarter figures showed a 3.5 per cent rise in residential house prices – “hardly evidence of price falls”.

That was in the face of Australian Property Monitors figures for the same period, which showed a 7.8 per cent decline in house prices.

This led Reserve Bank Governor Ian Macfarlane to criticize the “hopeless” data available to monitor the residential property market.

But if high-powered bankers are confused about the state of the property market, how is the average Joe supposed to know whether it is the right time to buy or sell?

First home buyers may be tempted to wait to enter the market, hoping prices will come back a bit further.

On the other hand, empty nesters may be weighing up whether to sell up their big home now before prices fall and they can’t pocket as much profit from the sale.

In the meantime, upgraders – who are one of the biggest segments of the residential property market – may be thinking of ways to outsmart the market such as selling their house and renting for a year before taking on a bigger mortgage for a bigger house.

SO WHAT IS THE MARKET DOING

BIS Shrapnel’s director of building services Robert Mellor says the conflicting data points to one thing – static price growth in the future.

And that, at least, is something the experts seem to agree on.

“What we are seeing is that most prices in Sydney in the data to March showed prices were actually static,” says Mellor.

Bewley agrees, saying “the indices are showing that there will be nought per cent real growth in property prices for some time”.

As the real estate institute of NSW president Rowen Kelly points out, that means that people need to buy property with the view to living in it for at least five years.

“Home buyers shouldn’t really care if the paper value of their house has gone up or down, they are living there and they can’t make any money out of the house until they sell it,” he says.

“Even home buyers who bought at the top of the market have not lost because they aren’t likely to be trying to sell their house today when prices might be lower – most people live in a house for at least eight years.”

Mellor says the real issue affecting the residential property market is debt and homebuyers' ability to pay their mortgage.
"We are predicting that interest rates will be at 9.5 per cent by June 2006 and that's going to hurt a lot of people who have big mortgages," he says.
SUB-HEAD: FIRST HOME BUYERS
First home buyers may have watched the runaway house prices of 2002 and 2003 with horror - but the news isn't all bad.
Finderskeepers.com.au buyers agent Gina Marchado says first home buyers who have a deposit should buy now rather than wait, because no-one is expecting prices to fall any further in the next six months.
L.J. Hooker associate director Trish Rogers says the $7000 federal government first home buyers grant and the stamp duty exemptions make buying a first home more attractive than it has been in the last ten years.
"I would say to first home buyers, get out and look around now because the government isn't always generous enough to encourage first home buyers - when I bought my first home, I got nothing," she says.
Even APM’s Louis Christopher says now is not a bad time for first home buyers to start shopping around.

"It is a buyers market and people should start to look now because there are some bargains to be had and some good opportunities," he says.
Bewley is more circumspect and says first home buyers have to weigh up their own individual needs before committing to a first home and a large mortgage.
"The advice that stands the test of time is to have a life plan before you buy - it is no good buying a two-bedroom apartment if you plan on having three kids in the next three years," he says.
"This phase of the market is going to mean people should hold property for at least five years before it will make sense to sell. And they need to be able to withstand things like divorce, illness and interest rates."
Mellor says interest rate rises over 2005 and 2006 may cause some forced sales, which first home buyers may be able to exploit - but even then, he says the best price discounts will only be in the order of five to ten per cent.
SUB-HEAD: DOWNSIZERS
Empty nesters trying to cash in on their property to move into something smaller or in a more remote location are in a winning position regardless of a boom or bust market - they will always make money.
Rogers says the ideal time to have downsized was in July last year - especially if downsizers were selling a house to buy a unit.
"July 2003 was when everyone was getting their dream price," she says.
Marchado agrees but says empty nesters who sell now won't have to pay boom prices for the property they downsize to.
Mellor says the real issue for downsizers is the location they plan on downsizing to.
"If you're planning on going to Brisbane then I would go now rather than in 18 months because Brisbane property is just going to keep on going up at a faster rate than Sydney's," he says.
"But your typical empty nester who wants to stay in the same area will be fine, the sums don't change much no matter what the market is doing."
SUB-HEAD: UPGRADERS
The most difficult questions about timing the market arise for upgraders - people who need a house with more space or to improve locations.
Mellor says the best time to upgrade properties is at the beginning of an upswing in property prices.
"The gap between your current property and the other larger property you will buy would have been narrower six or seven years ago than today," he says.
"And I would suggest the gap could be narrower in another four or five years time than now."
Kelly says upgrading is costly and stressful regardless of whether the market is booming or slowing.
"The real question is whether you plan to sell now, rent for a year and then come back to the market or do you buy and sell in the same market," says Kelly.
"There is no doubt that upgraders who sold their house last July and rented for a year to buy now would be sitting pretty.
"But it can work the other way with people selling and renting while the market runs away from them - it's all about what people feel comfortable doing."
Bewley says upgraders should always consider renovating before moving, as transaction costs like stamp duty eat up six per cent of any profits you make.
"People should think about renovating rather than moving, but they should not over-renovate. Having the best house in the street is not always the winning position to be in when it comes to selling," he says.
Bewley says renovating is always a better option than upgrading provided that the renovation cost is less than the transaction costs of moving house.

“That six per cent cost is much better spent improving the property if it means you can stay there for longer,” he says.

Rogers says upgraders benefit the most from a cooler property market because they have enough time to make rational decisions or negotiate on a property.
"In a boom, people make rash decisions because the property is sold so quickly but in a normal market like this things are stable enough to make en educated decision."
SUB-HEAD: THE LOSERS OF THE MARKET
All the experts agree that the big losers in today's property market are investors and speculators who bought at the peak of the market last year and expect to make money by selling this year.
Christopher says there are small numbers of greedy homeowners who tried to sell in October last year but couldn't get the price they wanted and then had to sell this year for an even more reduced price.
"If those vendors had bridging finance as well, then the whole thing would have been very costly for them," he says.
Marchado says the only real losers in a property market are people who are forced to sell - and that happens regardless of booms or busts.

CASE STUDY
Connie Nocentini and John Shuman are bursting at the seams of their three-bedroom home in Lewisham - and are about to embark on a calculated risk to snare a larger family home.
The couple are gambling that the market will not fall any further as they have bought a larger four-bedroom house but haven't yet sold their other two properties to pay for it.
"If the market goes down in the next two or three months and we can't get the prices we want for our other houses, then we will have to somehow find another $30,000 or $40,000 from somewhere," explains Connie.
"It's a risk, but it's a calculated risk that we have to take to get this house that we both really like and want."
Connie says the couple have no choice but to upgrade to a larger family home - "we are in a blended family situation with two 13-year-olds and a 10-year-old and only one bathroom and three bedrooms," she says.
The couple considered selling their properties first and renting, but when they came across their dream home just five-minutes walk away, they realised they would have to take a gamble to own it.
"The alternative was to miss out on the house, but it's not every day that the right thing comes along," she says.
Connie says the bonus of the slower market has meant that she has been able to negotiate a better price and better terms on the purchase of the four-bedroom house.
"If we were trying to buy in a boom market, there is just no way we would have been able to buy it because this house would have sold for more than our price range - you have to look at the market in both ways, I guess."


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WHEN IS THE RIGHT TIME TO SELL – July 2004 The tragedy with the property market is that you never know when it's peaked or hit rock bottom. If anyone could have anticipated the boom NSW experienced through 2002 and 2003, we could all have been millionaires sipping cocktails around the pool at some sea-change destination, bought dirt cheap, way before ``sea-change'' was even invented. Even now, while it's widely acknowledged that the great boom has in fact ended, there is still a raft of conflicting data about property prices. Some figures show that house prices in the March quarter of 2004 actually went up, even though auction clearance rates are down and many real estate agents have reported price discounting. Commsec head of quantitative equities research Ron Bewley says the Australian Bureau of Statistics March quarter figures showed a 3.5 per cent rise in residential house prices – “hardly evidence of price falls”. That was in the face of Australian Property Monitors figures for the same period, which showed a 7.8 per cent decline in house prices. This led Reserve Bank Governor Ian Macfarlane to criticize the “hopeless” data available to monitor the residential property market. But if high-powered bankers are confused about the state of the property market, how is the average Joe supposed to know whether it is the right time to buy or sell? First home buyers may be tempted to wait to enter the market, hoping prices will come back a bit further. On the other hand, empty nesters may be weighing up whether to sell up their big home now before prices fall and they can’t pocket as much profit from the sale. In the meantime, upgraders – who are one of the biggest segments of the residential property market – may be thinking of ways to outsmart the market such as selling their house and renting for a year before taking on a bigger mortgage for a bigger house. SO WHAT IS THE MARKET DOING BIS Shrapnel’s director of building services Robert Mellor says the conflicting data points to one thing – static price growth in the future. And that, at least, is something the experts seem to agree on. “What we are seeing is that most prices in Sydney in the data to March showed prices were actually static,” says Mellor. Bewley agrees, saying “the indices are showing that there will be nought per cent real growth in property prices for some time”. As the real estate institute of NSW president Rowen Kelly points out, that means that people need to buy property with the view to living in it for at least five years. “Home buyers shouldn’t really care if the paper value of their house has gone up or down, they are living there and they can’t make any money out of the house until they sell it,” he says. “Even home buyers who bought at the top of the market have not lost because they aren’t likely to be trying to sell their house today when prices might be lower – most people live in a house for at least eight years.” Mellor says the real issue affecting the residential property market is debt and homebuyers' ability to pay their mortgage. "We are predicting that interest rates will be at 9.5 per cent by June 2006 and that's going to hurt a lot of people who have big mortgages," he says. SUB-HEAD: FIRST HOME BUYERS First home buyers may have watched the runaway house prices of 2002 and 2003 with horror - but the news isn't all bad. Finderskeepers.com.au buyers agent Gina Marchado says first home buyers who have a deposit should buy now rather than wait, because no-one is expecting prices to fall any further in the next six months. L.J. Hooker associate director Trish Rogers says the $7000 federal government first home buyers grant and the stamp duty exemptions make buying a first home more attractive than it has been in the last ten years. "I would say to first home buyers, get out and look around now because the government isn't always generous enough to encourage first home buyers - when I bought my first home, I got nothing," she says. Even APM’s Louis Christopher says now is not a bad time for first home buyers to start shopping around. "It is a buyers market and people should start to look now because there are some bargains to be had and some good opportunities," he says. Bewley is more circumspect and says first home buyers have to weigh up their own individual needs before committing to a first home and a large mortgage. "The advice that stands the test of time is to have a life plan before you buy - it is no good buying a two-bedroom apartment if you plan on having three kids in the next three years," he says. "This phase of the market is going to mean people should hold property for at least five years before it will make sense to sell. And they need to be able to withstand things like divorce, illness and interest rates." Mellor says interest rate rises over 2005 and 2006 may cause some forced sales, which first home buyers may be able to exploit - but even then, he says the best price discounts will only be in the order of five to ten per cent. SUB-HEAD: DOWNSIZERS Empty nesters trying to cash in on their property to move into something smaller or in a more remote location are in a winning position regardless of a boom or bust market - they will always make money. Rogers says the ideal time to have downsized was in July last year - especially if downsizers were selling a house to buy a unit. "July 2003 was when everyone was getting their dream price," she says. Marchado agrees but says empty nesters who sell now won't have to pay boom prices for the property they downsize to. Mellor says the real issue for downsizers is the location they plan on downsizing to. "If you're planning on going to Brisbane then I would go now rather than in 18 months because Brisbane property is just going to keep on going up at a faster rate than Sydney's," he says. "But your typical empty nester who wants to stay in the same area will be fine, the sums don't change much no matter what the market is doing." SUB-HEAD: UPGRADERS The most difficult questions about timing the market arise for upgraders - people who need a house with more space or to improve locations. Mellor says the best time to upgrade properties is at the beginning of an upswing in property prices. "The gap between your current property and the other larger property you will buy would have been narrower six or seven years ago than today," he says. "And I would suggest the gap could be narrower in another four or five years time than now." Kelly says upgrading is costly and stressful regardless of whether the market is booming or slowing. "The real question is whether you plan to sell now, rent for a year and then come back to the market or do you buy and sell in the same market," says Kelly. "There is no doubt that upgraders who sold their house last July and rented for a year to buy now would be sitting pretty. "But it can work the other way with people selling and renting while the market runs away from them - it's all about what people feel comfortable doing." Bewley says upgraders should always consider renovating before moving, as transaction costs like stamp duty eat up six per cent of any profits you make. "People should think about renovating rather than moving, but they should not over-renovate. Having the best house in the street is not always the winning position to be in when it comes to selling," he says. Bewley says renovating is always a better option than upgrading provided that the renovation cost is less than the transaction costs of moving house. “That six per cent cost is much better spent improving the property if it means you can stay there for longer,” he says. Rogers says upgraders benefit the most from a cooler property market because they have enough time to make rational decisions or negotiate on a property. "In a boom, people make rash decisions because the property is sold so quickly but in a normal market like this things are stable enough to make en educated decision." SUB-HEAD: THE LOSERS OF THE MARKET All the experts agree that the big losers in today's property market are investors and speculators who bought at the peak of the market last year and expect to make money by selling this year. Christopher says there are small numbers of greedy homeowners who tried to sell in October last year but couldn't get the price they wanted and then had to sell this year for an even more reduced price. "If those vendors had bridging finance as well, then the whole thing would have been very costly for them," he says. Marchado says the only real losers in a property market are people who are forced to sell - and that happens regardless of booms or busts. CASE STUDY Connie Nocentini and John Shuman are bursting at the seams of their three-bedroom home in Lewisham - and are about to embark on a calculated risk to snare a larger family home. The couple are gambling that the market will not fall any further as they have bought a larger four-bedroom house but haven't yet sold their other two properties to pay for it. "If the market goes down in the next two or three months and we can't get the prices we want for our other houses, then we will have to somehow find another $30,000 or $40,000 from somewhere," explains Connie. "It's a risk, but it's a calculated risk that we have to take to get this house that we both really like and want." Connie says the couple have no choice but to upgrade to a larger family home - "we are in a blended family situation with two 13-year-olds and a 10-year-old and only one bathroom and three bedrooms," she says. The couple considered selling their properties first and renting, but when they came across their dream home just five-minutes walk away, they realised they would have to take a gamble to own it. "The alternative was to miss out on the house, but it's not every day that the right thing comes along," she says. Connie says the bonus of the slower market has meant that she has been able to negotiate a better price and better terms on the purchase of the four-bedroom house. "If we were trying to buy in a boom market, there is just no way we would have been able to buy it because this house would have sold for more than our price range - you have to look at the market in both ways, I guess."