The Upside to Buying in a Down Market


Property prices across many parts of Australia are falling, of that there is now little doubt. The prevailing sentiment would have you believe that falling prices are terrible for all concerned. Admittedly, the net result of those trading in a falling property market is probably to the downside.

Make no mistake though, there are still plenty of people who manage to improve their position in a falling property market. Understanding and accepting where we are in the property cycle is crucial to trading better and smarter.

There are five (5) trading opportunities to those prepared to act in the current market

  • First home buyers – were locked out of the property market during the boom. At one stage, baby boomers wondered if their children would ever be able to buy into the Sydney or Melbourne markets. Now is the best buying opportunity for first home buyers since the GFC in 2008. Sure, property prices were lower in 2008 but mortgage rates were significantly higher.

Every percentage point the market softens by means the more first home buyers that are able to climb aboard the property ladder. Whether they choose to do so is a secondary point. Some will, some won’t. The fact is first home buyers now have a choice of whether they do or don’t enter the property market – where as they were locked out during the latter stages of the boom.

The dwellings that appeal most to first home buyers, inner city apartments & houses in new suburban estates are feeling the brunt of this downturn.

  • Smaller mortgage – a lower purchase price means you pay the bank less each month in mortgage repayments. Most property booms are quelled by the RBA raising interest rates. This downturn has been manufactured by tighter credit conditions. Interest rates are at near record lows and look set to remain there for some time to come. Therefore, those that qualify for a home loan can buy a home for less than they would have paid 12 months ago & still enjoy record low mortgage rates.

A cheaper house, a smaller mortgage and still cheap money. The major challenge is getting a bank to offer you a mortgage.

  • Wider range of stock – a frustrating symptom of a boom is the tight availability of dwellings on market. The most desirable properties were the most contested too. Many home buyers found themselves securing a property during the boom that felt like a compromise. Winning the bidding war became success in and of itself – with the suitability of the dwelling a secondary consideration. The respective buyers were at least comforted by the fact their new home was ‘going up in value’.

Buyers now have a wide range of dwellings on market to choose from. There are some excellent opportunities in the market and the buyer competition is nowhere near as fierce as what it was in the boom. To have a generous selection of quality listings to choose from – in a healthy economy with record low interest rates is a buyer’s paradise.

  • Speculators are gone – The property boom went exponential in it’s last 12 months as speculators drive prices beyond all reason. Many a rational home buyer was blown out of the water by a cashed up fearless speculator. Speculators will be back in the market, but they are out of action for the time being, representing a more rational environment.

Home buyers will buy, even when prices are falling – we all need to live somewhere. A property boom starts with investors and ends with speculators. A property correction starts with speculators and ends with investors.

Once the market bottoms out, speculators will be back. Markets run on fear and greed. Once the fear is done, the greed will return.

  • Upgrade in a down market – the best time to upgrade is when the price gap between your existing dwelling and your desired dwelling begins to narrow. During the boom, your $1 million home went to $1.35 million (woohoo) whilst the proposed $2 million purchase shot up to $2.7 million (damn). The changeover price went from $1 million to $1.35 million (ouch!)

Upgraders should be loving this and taking advantage of this environment. Be careful of the risks in buying before selling though.

Bottom of the market

Some buyers are waiting for the phone call or the email that announces the bottom of the market. Alas, the town hall bells won’t chime and there won’t be a public service announcement to call the official bottom of the property market.

If you are looking for a home that will see you through the next 10 or 20 years, there will be periods of both price growth and price declines. Buying in a falling market means you are closer to the next market upswing than if you had bought during a boom. Economists continually assess the housing market as though it were exclusively an investment. This why they have been largely wrong for 20 years in forecasting the property market. In the broader financial world, no one buys an investment they know is going to fall in price before it rises.

But make no mistake, home buyers who know the house will fall in price before it rises, will still buy the dream home.

About The Author
Peter O’Malley

Peter O’Malley

Peter O'Malley has been successfully selling real estate in the Inner West since 2000. Since becoming the principal of Harris Partners, the agency has gone from strength-to-strength, increasing its market share and a significantly larger sales team. Peter's proudest achievement is in being able to offer buyers and sellers a superior selling strategy to the highly dysfunctional and flawed public auction system. Peter is the author of best-selling publications, Real Estate Uncovered and Inside Real Estate.

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