After a solid 7-year period of market growth, Sydney siders are now experiencing a stagnation in their property prices. For first home buyers, this is a welcome change. Since 2012 these buyers have seen property prices grow faster than their bank accounts, making the idea of finally saving up a 20% deposit a distant dream. Now it seems there is a glimmer of hope for those trying to get into the Sydney market, giving many a reason to act and jump into a property while they can. Now this seems like an exciting time for young buyers, here’s why it may not be the best course of action.
Let’s take a historical look at Sydney’s market to see why this may not be the strongest property move. After each growth phase, the market has regularly stagnated for approximately 8 years, while going through a correction period. This can be seen from 1990-95 and 2003-08, where price growth experienced a hangover post boom. The plateaus are the result of price corrections, which are natural and expected in a market cycle. The movements of our market over the next 8 years are expected to be not so different than past decades. The Sydney market may stay stagnant for at least 8 years, while the investment market continues to soften, and market sentiment remains low.
Sydney Housing Data (Source: ABS)
So, what does this mean for first home buyers?
The reality is, first home buyers jumping on a property now will be buying an extremely expensive asset that has the potential to move backwards. Sydney is at the top of a market cycle and is likely to stagnate or correct over the midterm.
The buyer would give themselves a stronger opportunity by buying into growth markets and leveraging to create wealth, while the Sydney market is cooling. Rather than offload the whole deposit into one large loan, first home buyers could potentially invest in two properties in more diversified markets. This allows the buyers to rent in an area they find more appealing and allow their money to grow for the next 8-10 years. When it comes time to buy into the Sydney market, they may have stronger purchasing power through equity – allowing them to purchase in a more appealing location, or even a better home.
This may be an idea that goes against the grain of current first home buyers, and it may be a theory that challenges every bone in the body of a saver. But it could be a safeguard against purchasing a first home that leaves a hole in your pocket, instead of giving you the life you want to live. Many have already adopted this style of living, leading to the growth of a demographic known as the “rentvestor”. This generation of people are taking the property market by storm and creating their own wealth, to read more on the subject click here.
In these times of financial uncertainty, we can always turn to the wise words of Warren Buffett to guide our next move.
“Be fearful when others are greedy, and greedy when others are fearful.”