A buyer’s market is when supply is greater than demand. In real estate there are different stages of the market which we sell and buy in. With each phase, a buyer or seller will have an advantage. But, understanding when a market may turn can make or save you a lot of money.
When you look back throughout the cycle of real estate, you will find there are certain influences on markets changing. During a buyer’s market, the interest rates are on a rise which affects households. There are many different factors to a changing market, but a logical approach is easiest to understand.
During the strong times, many people think that real estate will only go up. When they purchase, interest rates are low and ‘money’s cheap’. Banks lend at a drop of a pin and the average punter spends every dollar the bank gives them. After the purchase, life is good, they’re paying the bills, putting food on the table and the rest covers the minimum mortgage repayment.
In this scenario, what will happen if the Reserve Bank of Australia (RBA) increase the interest rates by one point (.25%). In some households it may only be an extra $50 a week, but where is it coming from if you’re currently working ordinary and over time already and you’re at your maximum? At this stage, many people put their property on the market in hope to sell and cover the purchase price and stamp duty.
The other problem during these times is the banks are tightening, so loans are harder to get. This means, there’s less buyers to work with and without the added pressure of competing buyers, it leaves room for negotiation. It may take another 6 months before that seller might feel the pinch of the interest rates rise. By this stage, it will be on it’s second increase leading to a third. When people make the decision to sell at a significant loss, it is usually because they are so behind in bills and mortgage repayments, it seems that selling at a loss a servicing a loan less than your current mortgage is a better place to be.
This is the reality for many people who have gone through the cycles of real estate. Ups and downs we can always count on. Knowing when they’re coming is the skill in making short to medium term money in real estate.
The following advice is of a general nature and intended as an opinion and broad guide. For all legal, financial or real estate advice you should obtain independent professional advice to do with the specific nature of your circumstances before making any legal, financial or real estate decisions.