Has the Market Bottomed?

Australian property prices have fallen, and most analysts are pointing towards them falling further. That is exactly why this is an interesting time to be a buyer.

The temptation in a softer market is always to wait. Wait for another five per cent. Wait for interest rates to fall. Wait for confidence to recover. Wait until the economic outlook feels clearer.

The problem is that the perfect buying signal almost never arrives when prices are at their most attractive. By the time the market feels safe again, it usually isn’t cheap anymore.

Consumer confidence is finally beginning to improve, with both Westpac-MI and ANZ-Roy Morgan sentiment recovering from recent lows, and inflation expectations easing.

Consumer confidence alone doesn’t determine house prices, but it does influence buyer behaviour. When households feel more confident about the economic outlook, their job security and their future finances, they are generally more willing to make major financial commitments, including buying a home.

The reverse is also true. During downturns, uncertainty can keep buyers on the sidelines, particularly when there is a widespread expectation that prices will fall further.

As that pessimism begins to ease, sidelined demand can start returning, often before the recovery becomes obvious in the headline price data.

And right now, buyers still have something they haven’t had for some time: leverage.

Prices are softer, buyers have more room to negotiate and vendors are becoming more realistic. At the same time, rents continue to rise and rental supply remains tight.

Could prices fall another 5% from here? Absolutely. Some markets may even fall further. But trying to perfectly pick the bottom is almost impossible.

The bottom will only be obvious after it has passed. Property data is backward-looking, so by the time price indices, lending data and economic releases confirm the market has turned, the transactions that created that turning point have already happened.

The actual bottom will probably still feel uncertain. Prices may still appear to be falling, headlines may remain negative and buyers may still expect further declines. That uncertainty is precisely why the opportunity exists.

Then the data catches up. Confidence improves, clearance rates strengthen, prices stabilise and the headlines begin talking about recovery, but by then, the market has already moved.

You can wait for certainty, or you can buy at the best possible price. You rarely get both.

The cost of waiting

For renters, waiting isn’t free. Rents are still rising, rental supply remains tight and the pressure on tenants could intensify further.

Rents have risen 7.4% in the last 12 months and NAB estimates Sydney and Melbourne rents would need to rise by around another 25-30% over the next two years to restore investor returns. While the adjustment is likely to come through a combination of higher rents and softer values, the message is clear: upward pressure on rents remains significant.

For renters already in a position to buy, that creates a compelling reason to act.

Buying while prices are soft can mean getting ahead of further rental increases while positioning before the next uplift in property values. Waiting for clearer signs of a recovery risks the worst of both worlds: higher rents today and higher purchase prices tomorrow.

For investors, the opportunity is different

Property prices have softened while rental income continues to grow, a combination that can improve the entry equation significantly.

Buying now allows investors to participate in further rental growth while maintaining exposure to the next phase of capital growth. Waiting may provide greater certainty, but that certainty usually comes at a higher price.

Once investors are convinced the market is recovering, sellers will likely know it too.

If you’re financially capable of buying and have a long-term horizon, the more useful question isn’t whether this property will be another 3% cheaper in six months. It’s whether you’ll be happy you bought this property at this price in seven or ten years.

The real market bottom will almost certainly occur while people still believe prices have further to fall. By the time everyone agrees the downturn is over, it will already be visible in the rear-view mirror.

So, has the market bottomed? Maybe. Maybe not. But if you wait for the bottom to announce itself, the opportunity may already be behind you.