By Peter O’Malley
Author of Inside Real Estate
Those intending to sell their property face a decision around timing. Ride the market dip or exit immediately.
Property markets will always set new highs at some stage in the future. Some who would like to sell a property will wait for the next buoyant market environment. But how long will it take until the market peaks again? Peak to peak can often be a long time. Perth and Brisbane have not set new highs in over 10 years.
If you own a property that would have sold for say $600,000 during the boom, the current market price, based on trend, is probably around $550,000. The property will be worth $600,000 again in the future. The conundrum at hand is it’s likely to be worth $520,000 - before it is worth $600,000 again.
Do you ride the dip or accept the current market price?
There is no wrong or right answer to this question. The answer varies from person to person, circumstance to circumstance.
The worst case is one where you believe or decide to ride the market downturn out, yet then find yourself selling at the bottom of the market cycle. If there are compelling reasons that may inadvertently force you into selling, consider bringing the sale forward. When it comes to timing the sale, the only thing worse than missing the top of the market is hitting the bottom.
The decision to hold vs sell will often have competing and contradictory forces, making the decision even harder to make. Below are just some of the many points to consider:
When to ride the dip – you are near certain you won’t get caught ‘having to sell’ in the near future. Those with the least pressure on themselves can wait for the best buying and selling opportunities. If the property is a cash flow investment, you can hold on without holding costs and wait for the right point in the selling cycle.
The property is your primary residence and the asset value is secondary to the lifestyle benefits you enjoy from the home. Everyone needs to live somewhere – which is the major point economic doomsayers keep overlooking when assessing the property market.
When to exit the market – you are going to need or really want to sell in the near future. If you are selling in a falling market - time is your enemy. Waiting for a quick bounce in the market is likely to see the capital value of the property deteriorate further. Banks are pushing many investors who entered the market using ‘interest only’ loans into ‘principal and interest’. The adjunct is many interest only investors are becoming forced sellers as their finances face a cashflow squeeze.
Falling markets also represent an excellent opportunity to upgrade too. Whilst your existing home may have declined in value, the one you are upgrading to has declined by a larger amount.
The best decisions are not always the easiest ones to make. Being realistic, pragmatic and unemotional will ensure you make the best possible decision at that time.