When’s The Right Time To Buy?
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Falling interest rates, a softening property market and increased federal and State based incentives are encouraging many first home buyers to enter the market sooner than they might otherwise have considered.
However other potential home owners, worried about the impact of the global credit crunch on the Australian economy, property prices and the job market, are taking a more reserved approach, choosing to wait before they take the plunge into home ownership.
Which is the best approach? It really depends on your own personal circumstances. We review some of the factors that may help you decide when is the right time for you to buy.
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Property market cycles
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Property prices typically go in cycles – a period of high price growth followed by a period of slow or even negative growth. Whilst different markets will vary, a property cycle usually lasts about 10 years from the start of one growth phase to the start of the next.
If you’re looking to make capital growth in the shortest timeframe possible (through increasing house prices), it’s best to try and buy at the start of a growth phase. However, if you’re in it for the long term, and property should always be considered as a medium to long term decision, this is less relevant. Even if you buy at the peak of one cycle, your home is likely to increase in value over the course of the next property cycle. It’s more important that you avoid a situation where you have to sell your property at the bottom of a cycle.
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Who has the upper hand?
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When property prices are rising, it’s usually a sign of a sellers market. In this situation sellers are less likely to negotiate or accept an offer lower than the asking price. Conversely, when property prices are flat or falling, buyers usually have the upper hand, increasing your chances of snapping up a bargain.
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Are you emotionally ready?
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Buying a home is a huge commitment – financially and emotionally. So it’s worth asking yourself if you are emotionally ready to take the plunge. Don’t buy just because you think you should, or because your friends and family tell you to. Only buy a home when you yourself feel ready to make that commitment.
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Financial factors
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Take time to understand all the costs involved in a property purchase, and understand the trade-offs. For example, buying sooner may allow you to take advantage of the recently increased first home owner grant. However, if this means you don’t have as big a deposit as you’d like, this may mean you’re paying more in lenders mortgage insurance premiums.
It’s worth sitting down with a home loan expert well before you start looking at properties and taking the time to understand all your options and the costs involved.
You should also look carefully at your budget and your spending habits. Make sure you’re happy you’ll be able to afford your home loan repayments without putting yourself under too much pressure. And be sure to allow for at least a couple of interest rate rises so you don’t get caught out.
If possible, pay off other debts such as credit cards before you take out a home loan. It will only be harder once you have a home loan to worry about as well!
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Plan for the unexpected
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Nothing in this world is certain. Think about what would happen if you lost your job, or were unable to work due to accident, sickness or some other reason. How would you pay your home loan and meet your other financial commitments? If there’s no easy answer, you should consider insurance products that can offer you protection in these circumstances. If you think you’ll need insurance, remember to include the premiums in your monthly budget.
Is your job likely to require that you move in the near future? Moving home can be an expensive business, so if so, you may want to delay buying a property until you know you can settle in an area for at least a few years.
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Do what’s right for you
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Knowing when’s the right time to enter the property market can seem like a daunting decision. But at the end of the day, no time is perfect. The right time for you to move onto the property ladder really depends less on the market, and more on your own personal situation and how you approach your purchase.
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