By Craig Lowe
Over the last eight years of selling real estate one of the most consistent opinions I have heard from people is that property never falls in value. Now that property values are falling people seem to have forgotten their old mantra that prices rise, reach a plateau, and then rise again. While in the long term prices trend upward, history shows us that in the short term property prices can and do fall and we are beginning to see that now.
Statistical and anecdotal evidence shows that liquidity has dried up. The average days-to-sell has nearly doubled and the amount of houses sold has fallen through the floor. Yet there are more houses for sale and fewer buyers at open homes. This represents the increasing gap between what sellers expect and buyers are prepared to pay. Sellers are refusing to accept that their home might be worth less than they think, and buyers are sitting on their hands.
This raises some interesting thoughts around the definition of ‘value’ with regards to property. Hypothetically if you had your house on the market last year you may have received more for it than if you had it on the market this year, but if you haven’t had it on the market at all how can you quantify what this imagined change in value is?
The spread of bids are not quoted on daily basis for individual properties like individual stocks. If they were, clearly the ‘bids’ would be fluctuating day to day, month to month, and bids would be considerably lower this year than they were last year. This, in my opinion, means that property ‘values’ have indeed fallen and are likely to continue to do so for some time. Sentiment has changed which tends to gather momentum and build upon itself like a snowball rolling down a hill (and this same phenomenon is at work in boom times to drive prices up).
However this is unlikely to be accurately reflected in the current sales data for several reasons. For instance many properties on the market aren’t selling at all because the vendor would rather withdraw the property than accept an offer less than they wanted. This means many actual and verifiable drops in value are not recorded in the statistics.
Property prices ultimately have to be in sync with affordability and a realistic multiple of annual wages. By that measure we have some of the most unaffordable homes in the world and I believe this imbalance will correct further than it already has over the medium term.
What does this all mean for sellers in the current market?
It is important for sellers to put this ‘doom and gloom’ in perspective. If you have been riding the property boom for most of this decade and you have real motivations for cashing up now, then affecting a sale at current levels is not going to cause you any real heartache. People who do want to sell in this market, for whatever reason need realistic expectations; the majority of properties are taking longer than two weeks to sell and are no longer selling at the peak price levels we saw last year. If you run a tender or some other short campaign then make sure you have a backup advertising campaign ready to roll if you do not receive any bids.
If renting your home out is an option you need to consider several things. With prices falling are you prepared to wait long enough to make it worth your while? Don’t bank on things improving in a hurry. Is the rental income enough to cover all outgoings? Rents are going up, but so are expenses. Are there other things you could be doing with your equity in the home, i.e. paying down increasingly more expensive debt?
If you purchased a first home in the middle of last year then be prepared to battle it out for the longer term and don’t take on any more debt. And don’t forget, another definition of value is having a warm and cosy house of your own come home to!
If you are thinking of selling I have developed new strategies to contend with the changing market that have proven to considerably increase the odds of a obtaining a good result and I would love to have the opportunity to present those strategies to you.
Please call me anytime on 021-764-647 to arrange a comprehensive presentation and of your home's current market value with absolutely no obligation or cost.