Is a recession the right time to do some house hunting? Should you be buying property during times of financial restraint and recession? Our buyers agent suggest why it’s a great time to buy.
Buying property in a recession | Transcript
00:30 MR: Today’s podcast, we’ll be looking at buying property in a recession. We ask questions like, “Is it a good idea? And if it is a good idea, what to look out for when you are buying?” So getting right into it, what changes for the buyers out there when it is a market that’s in a recession? Well, there’s cheaper finance, there’s less buyers competing for property, usually an over-supply of property, even though that’s not happening at the moment in 2020’s recession, clearance rates increase and in most cases, double, agents are discounting real estate to attract buyers, mortgaging options are up and buyers can purchase better quality homes, and in better suburbs. So it’s exactly opposite of what we normally know as a typical market.
01:14 MR: Okay. The best way to work out what can happen to the real estate market in a recession is just looking at the past. Australia’s last recession was in 1990, the real estate prices had hit a peak in 1989 and experienced a decline of around 10.5% over a 12-month period. Now, when did real estate prices come back? They took approximately four or five years to come back to the pre-1989 levels. So according to the record books, it was 1996 when the median house price levelled out to the 1989 prices. So that’s a really good example of how long a flat spot in the market or a negative GDP growth of 12 months can affect the real estate prices.
02:00 MR: Well, it sounds like it’s probably a bad idea to buy property in a recession. I would ask the question, “What is it normally like to buy property?” Well typically, buyers experience low volumes of stock, high quantity of buyers, prices are going well above market value, and to be able to buy good quality real estate in Melbourne, you’re normally having to compete quite fiercely; that’s what it’s normally like to buy property. So, if you have an opportunity to buy a property where those barriers of entry are taken away and you basically have more choice, and more flexibility in price, and stock, and quality of purchase, I think that would be a better opportunity to buy property in that kind of market.
02:48 MR: Now remembering that property is a long-term game, holding real estate should be something that you have for more than 10 years, so using a flat spot in a market like a recession is an opportunity; an opportunity to buy better real estate. So say for example, six months ago you might not have been able to purchase in the suburb that you wanted to buy in, and now thankfully to, I guess, general fear in the marketplace and prices softening up a little bit, you are able to choose a better suburb or a bigger block of land, something that you can subdivide or by passing an inner city suburb that needs a renovation, something you might not have been able to afford prior to the recession happening. That’s the benefit in buying during a recession and having a long term approach, where you can look back and say, “Hey, I could probably never buy this property right now if it wasn’t for that recession that gave me that opportunity all that time ago.”
03:49 MR: So how do you know when the prices has finished going down? No one wants to buy property and watch it go down another 3 or 4% in value. Well, I would ask the question, “Does it really matter?” The opportunity with this strategy really is taking advantage of a scenario where there are less buyers, less competition, and that’s the opportunity where you’re not paying an absolute premium to secure that great property that has that added value benefit that you can add and put into it for the long run. The best deals or the best prices that are made in this kind of market are to the proactive buyer, the person who’s not sitting on the sidelines, they’re out there and they’re hustling, they’re going out for inspections, they’re putting in offers on multiple properties, and seeing which one’s gonna flex to the conditions that they’re looking for.
04:43 MR: Buying in this kind of market is to not really focus on the end of the world scenario or a scenario where property prices are gonna fall below 60%, it’s more about, I guess kind of counteracting what’s going on and thinking about when a property sells in a good market, the strategies, or the things that make a property high value. So for example, buying property with a big block of land, buying property that’s close to a really good school, buying property that has a higher rental yield, so something that’s probably positive gear, buy something that has the potential for a really good renovation where there is a clear gap between the prices that are dilapidated and a fully renovated house. They’re the kind of things that I would be looking for in this kind of market. So when the market does turn around in five years, or in seven or eight years, or in 10 years time, you’ve got that ability to implement your first strategy that you… Or the reasoning as to why you first initially bought that property and benefit from it.
05:47 MR: So sadly, we’re coming to the end of today’s property podcast. But look, if you want more, feel free to subscribe to our channel or leave your details and we wanna give you a little gift of suburb reports, they’ll give you all the facts that an investor needs now on the suburb they’re interested in. Just leave you name and number and your email address either at propertyinvestorpodcast.com.au or wiserealestateadvice.com.au and we’d love to email you that report. Now next week’s episode is a really good one, we’ll be looking at what is the right amount of rent to charge, especially in this marketplace where we’ve got rents coming down, how do you find out what the right figure is. So stay tuned we’ll be posting that one in the next week, and look, I wanna thank you for listening and that’s a wrap.