TIME IN THE MARKET VS TIMING THE MARKET

October 20, 2022

A question that any homebuyer would ask time and time again is – should I purchase property now? or should I wait for the right time?

This is where the concepts of time in the market vs timing the market is vital to consider.

When you think the market is in the best condition for buying, whether it’s a downturn or a low-interest rate period, you buy property. This is known as timing the market (Or Buy & Sell Strategy). 

On the other hand, time in the market (or Buy & Hold strategy) is to buy property when you can afford it. 

It’s not easy to figure out the best buying time. You could have to wait for years till prices fall, and until then, many good opportunities might be lost. When you buy as soon as you can afford it, rather than waiting until the timing is better, like two years from now, you spend a longer time in the property market, which increases your chance of building equity.

Let’s look at more reasons why you should consider ‘Time in the market’ over ‘Timing the market’.

THE PROPERTY CYCLE

When it comes to the property market and real estate, there is always a continuous cycle. This cycle can be characterised into 5 main stages. These stages can reflect the ups and downs of what we see in the market.

It can be challenging to pinpoint what stage the property cycle is currently in. This is because of the consumer fear that might occur when there are periods of change. This can be seen in times of social and economic peaks and troughs. As a result of these changes, it is challenging to distinguish what stage the property market is really in versus what the media says it is.

Additionally, no one knows how long each property market cycle will last- not even the property experts. But one thing we do know is that property prices will continue to go up and rise in value. This means that more time in the market is always better than trying to guess when would be the best time to enter.

 

 

20 YEARS OF THE NATIONAL PROPERTY MARKET 

Over the past 20 years, one thing that has always been consistent with the property market is that it keeps increasing in value. Over this time, property has proven it is a stable, long-term asset and investment. 

Despite cycles of increase and decline in housing values, the long-term trend is unquestionably upward. In yearly compounding terms, home values have climbed by 5.4% on average since July 1992, or 382% nationally during the preceding 30 years.

Throughout history, we can see that despite all the challenges that the market may face – for example, global pandemics, new policies or inflation and interest rates, the property market is resilient and has consistently increased in value over the long term.

Overall, the long-term trends highlight the cyclical nature of housing markets. Changes in housing values over decades are a clear reminder that time in the market is more important than timing the market.

WHAT PROPERTY INVESTORS NEED TO DO

Instead of timing the market, smart property investors need to focus their energy on researching the right property, a good location, and buying at a time that suits them! So if time in the market is more important than timing the market, what does a clear strategy look like for property investors? 

Take Action Now – Stop Procrastinating. 

There is an old Chinese proverb that says 

“The best time to plant a tree was 20 years ago. The second best time is now.” 

Basically, this means that if you want success and growth in the future, the best time to act is now. This applies to all, including property investment, where at the end of the day, the longer you stay in the market, the more value you will get.

Purchasing property as soon as you can afford it can be challenging, though this outweighs the risk of missing time in the market by waiting for the ‘right time’. Smart investors take action and buy when they are financially ready and do not wait for periods of a downturn – you can do the same!

When you wait for the ‘perfect time’ to purchase, you risk missing out on time in the market. Time in the market is so essential as more time in the market means more money earned. Additionally, you could have missed opportunities on investment-grade properties altogether through waiting.

Reduce Your Mortgage Interest & Minimise Your Tax 

The next step is to reduce your mortgage interest and minimise taxes. There are a variety of strategies to achieve this, and opening an offset account and understanding your tax returns is just one of them.

Open an Offset Account

An offset account is an account that links to your mortgage and uses the money in your offset account to physically offset the interest paid on your home loan. 

An example of this can be where you had $100,000 in your offset account and $600,000 left on your mortgage- as a result, because of your offset account, you would then be owing $500,000 on your home loan. Therefore, you can pay less interest on your home loan and save more.

Speak to our property investment strategist team here to ensure this offset strategy suits you. 

Understanding Your Tax Returns

In Australia, our systems are geared to best help property buyers and investors. By understanding your tax and its returns, you can get more money back in your pocket. 

Owning an investment property can allow you to make deductions against your income for any expenses relating to that investment property. This can allow you to pay less tax, leaving more money available to potentially re-invest!

To find out more information, click here.

Buy and Hold Long Term

When you purchase property, it is essential that you hold it for the long term. Long enough to see the benefit of compound growth where you can see your property increase in value and, therefore, equity. This strategy allows you to ride out any temporary market fluctuations and see more positive and stable growth.

David Stafford, a General Manager of sales and marketing at Indigo Group, points out that property in Australia tends to double in value every 7–10 years, which means that the average person “should look to property investment as a 3–7 year strategy to realise good growth”.

Holding property is so vital for any property to fully experience growth of value and equity.

STRONG HOUSING MARKET FUNDAMENTALS 

One of the major fundamental factors in the housing market is supply and demand. These two aspects greatly impact the prices/ property values in the market. The changes we see in supply and demand can be a result of many elements, such as the following below:

A Lack of New Housing Supply

According to Corelogic, we can see a downwards trend in supply in the pipeline of new apartments. This can be reflected in the monthly approvals for unit sectors experiencing a decline and sitting well below the decade average- which runs the risk of undersupply for units.

With an increasing population, it’s likely to see property demand continue to outweigh supply and place further upward pressure on prices, meaning prices will likely continue to increase. As a result of the lack of supply and increasing demand, it could take over a decade for the property market to recover.

 

Source: CoreLogic

International Immigration is Picking Up 

As the COVID-19 lockdown crisis comes to an end, we can see borders across the globe beginning to open up and international travel increasing.

 As a direct result, we can see a rise in international students and skilled migrants entering the country. CoreLogic Research Analyst and report author Kaytlin Ezzy said the annual growth trend in national rents held steady at a record high of 10% in August and September.

“We saw rents fall marginally over the first few months of COVID, but, since August 2020, national dwelling rents have surged almost 20%, equivalent to a weekly rent rise of approximately $90 per week.”

Hence as expected, we are experiencing an increase in the demand for rental housing. This can be seen especially in the areas that are close to Sydney’s CBD such as Kogarah, Banksia, Arncliffe and Parramatta. This increase in demand will be a continuing trend for the next few years to come.

Other Factors that Will Influence the Property Market

There are also multiple other contributing factors that influence the property market, such as

  • Increasing construction costs: a shortage of labour and materials 
  • The Australian economy is still growing strongly 
  • Historically low levels of the unemployment rate 
  • Growing wages
  • More government incentives to encourage first-home buyers into the market. 

OPPORTUNITY FOR HOME BUYERS AND INVESTORS 

Now that you understand why time in the market is better than timing the market, here are the opportunities that are best for you.

Everyone is different, but the good news is depending on your situation, you can choose one of these strategies that are best for you.

Purchasing off-the-plan is when you purchase a property that has not been completed yet and is in construction or planning. This strategy is great and allows you to save money whilst your new home is in the progress of being completed and as well as the fact that you can ride inflation.

Purchasing brand-new completed homes allow you to take full advantage of time in the market by buying now. This is in comparison to purchasing two years down the line when it is more expensive, and you could’ve generated more equity. Additionally, you get the opportunity to beat interest rates.

FINAL WORDS

When is the best time to purchase a property?

When is the best time to purchase a property? The answer is whenever you are finance ready!

Time in the market holds so much value over timing the market. Timing the market can be difficult as you are trying to pinpoint the right stage, the right time, without knowing when the “right” time will come. Buying when you can afford property is the best strategy where you can reap the benefits of being in the market, the most prominent one being your property generating equity for you.

To find a perfect property for you, chat with our team at St Trinity today to take full advantage of time in the market.

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