4 Reasons You Shouldn’t Wait for the Market to Drop Before Investing in Property
Waiting for the market to crash and prices to drop so you can finally start investing in property? This article explains why that may be a bad idea.
Lead exposure always leads to some form of contamination.
Constant exposure to even just a whiff of lead can cause it to build up in your system over months or years. And this could eventually leave you with a fatal case of lead poisoning.
You know this, right?
But did you know that constant exposure to bad news causes the same effect?
This is why property investors who are constantly being barraged by negativity end up in some sort of paralysis.
They hear the daily doomsday talk from the media…
They read all the headlines saying the market is crashing down…
And they clam up.
They’re unable to make sound investment decisions because they’ve got this negativity and fear clouding their judgment. Either that or they fall for the mistaken belief that they should just wait for this ‘looming’ market crash to happen so they can score some affordable deals.
If you ever catch yourself thinking this way, just know that it’s the negativity talking. You’ve probably been exposed to a huge volume of bad news consistently, which is why your sound judgment has been contaminated.
But no worries.
In this article, we’ll bring in some perspective to try and cut through all the negative noise out there. Here, we’ll discuss three key reasons why you shouldn’t wait for the proverbial market crash to happen and start investing whenever you’re ready.
The 3 Reasons
The reality is that it’s not just imprudent to wait for a market crash to happen just because the media says it would. It’s also impossible for any property investor to try and ‘catch the bottom’ IF a market crash does happen.
Here are the three reasons why:
Reason #1: There’s no Australian Property Market
Waiting until the Australian property market has bottomed makes no sense… because there’s no such thing as an Australian property market. What we do have are 15,264 suburbs, and only about 5,000 of those are statistically significant. That means only 5,000 of those suburbs have high enough sales volumes that allow for proper data referencing that doesn’t have massive holes in it.
For the rest of the suburbs, one property gets sold, and that immediately skews the data.
Additionally, you’d notice that the media typically has a very Sydney-centric narrative. The problem with that is that the total market share of properties in Sydney is so big, that it can pull down (or up) the overall aggregate value of many other parts of the country.
This means that when the media says the Australian property market is declining, chances are that they’re only talking about Sydney or any one of the five major capital cities. But that kind of reporting doesn’t capture the fact that property prices in the suburbs might still be on the rise.
In fact, as of writing time, 88.8% of all Australian suburbs have grown in value over the last six months.
So, again, if you’re waiting for the Australian property market to crash…
Then you’re waiting in vain.
Because while it may be true that the major capital cities are seeing declines, the rest of the country is still on an upward trajectory. And you can’t catch the bottom when there’s no bottom to catch.
Reason #2: No significant correlation between interest rates and median sales
Another basis used by the media in saying that the property market is crashing is the rise in interest rates.
Many people believe that as soon as interest rates go up, property prices will come crashing down. And the media likes to peddle the idea that there’s a 100% correlation between interest rates and median sales of properties.
But we did a study looking at the property market values and interest rates from January 2000. Here’s what we found
At no point over the last two decades or so did the correlation coefficient between interest rates and median sales hit 30%. At most, that correlation coefficient stands at 10%.
In other words, there’s a 10% chance, at most, that interest rates will have any impact on property prices in most parts of the country. This means the correlation between the two is so weak, it’s almost insignificant – perhaps even negligible.
And that brings us to our third point…
Reason #3: There’s very little possibility of a property crash in the foreseeable future
There’s really nothing to support the speculation that there will be a property crash in Australia… at least in the foreseeable future.
We’re still seeing record-low unemployment. Not to mention we’ve got record household savings. The money is there. And besides, when banks lend to individuals, they put a risk buffer on top of their mortgage assessment to ensure people can still pay their dues if rates do go up.
All these things translate to economic strength and stability in the property market.
So, don’t let the barrage of negativity in your environment get to you. If you’ve got a sound investing strategy and you’re willing to work on growing your portfolio, don’t be scared to make things happen for yourself. And don’t wait for a market crash that’s not about to happen.
Shut out the negativity, cut through the noise, and do what’s good for you.
Now is Still a Good Time to Start Investing.
At the end of the day, you’re free to decide whether you’re going to start investing in property now or later.
The point is that if the only thing stopping you from doing it is because you’re waiting for the bottom to fall out…
Then you might be waiting in vain for something that may never happen.
And that just doesn’t make for a sound investing strategy at all.
