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Why trying to time the bottom of the market is the biggest mistake investors can make right now
Should investors wait for property prices to fall further? Trying to time the bottom could mean missing the buying opportunity altogether, writes Arjun Paliwal.
Should investors wait for property prices to fall further? Trying to time the bottom could mean missing the buying opportunity altogether, writes Arjun Paliwal.
Every time property markets soften, investors face the same dilemma: buy now or wait for prices to fall further.
Waiting can seem like the safer option. Why purchase today if the same property could be cheaper in three or six months?
The problem is that market bottoms are almost impossible to identify until they have already passed.
By the time confidence returns, economic conditions improve, and the headlines declare that the worst is over, buyers have often returned too. Investors who waited for certainty can find themselves paying more, facing greater competition and negotiating with vendors who have regained confidence.
At InvestorKit, we have helped more than 2,000 clients purchase over 3,000 properties, representing more than $2 billion in acquisitions and creating more than $500 million in equity.
One of the clearest lessons from that experience is that long-term wealth is rarely created by perfectly predicting the lowest point of a market. It is created by identifying fundamentally strong markets, purchasing quality assets and giving them time to perform.
The idea of waiting for “the bottom” is also problematic because there is no single Australian property market.
Australia is made up of dozens of individual markets moving through different stages of their cycles.
Victoria is a good example.
InvestorKit has been buying across markets including Melbourne, Geelong, Ballarat, and Bendigo, positioning clients before the growth story became obvious in the headline numbers.
Today, we can see those markets moving through different stages of their cycles.
Greater Melbourne’s house prices have increased 4.0 per cent over the past year, while inventory has tightened to around 2.5 months of stock and days on market are trending down. But even that city-wide figure masks significant variation. Brimbank recorded 7.6 per cent annual growth and Cardinia 6.1 per cent.
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Geelong has moved further, recording 7.5 per cent annual house price growth, declining days on market and relatively high sales market pressure. Bendigo has recorded 12.1 per cent growth, with inventory falling to just 2.3 months of stock.
An investor waiting for someone to declare that Victoria had officially reached the bottom could therefore have missed growth already occurring in individual markets.
Tasmania provides another example of a growth cycle playing out now.
InvestorKit’s latest Housing Fundamentals Analysis found regional Tasmania is emerging as one of Australia’s fastest-growing regional markets. Launceston house prices have increased 13.0 per cent over the past year, while inventory has fallen to just 1.3 months of stock. Vacancy is around 0.4 per cent, and rents have increased 12.2 per cent.
Greater Hobart is strengthening too, with house prices up 5.6 per cent, inventory at around 2.1 months of stock and vacancy at just 0.2 per cent.
These examples reinforce why investors should focus less on calling the precise bottom and more on identifying when underlying fundamentals are improving.
At InvestorKit, our proprietary EDGE (Evaluation, Data and Growth Engine) platform analyses thousands of suburbs and hundreds of indicators, including housing supply, vacancy rates, rental growth, affordability, population movements and employment.
Weak sentiment can sometimes create favourable buying conditions. When fewer people are prepared to act, competition can fall, vendors can become more negotiable, and buyers can have more time to conduct due diligence.
That does not mean investors should automatically buy into a falling market. A location experiencing weakening employment, increasing supply and deteriorating demand can continue to underperform.
The opportunity emerges when sentiment remains subdued, but the underlying fundamentals are strengthening.
Property is generally held for years, if not decades. Whether an investor purchases three months before or three months after the technical bottom is unlikely to determine their ultimate financial outcome.
The quality of the market, the asset, the investor’s ability to hold it and the length of time they remain invested are far more important.
At InvestorKit, we monitor 65 markets because opportunity is constantly moving around Australia.
There will rarely be a moment when every economic indicator and media headline tells investors it is unquestionably safe to buy.
By the time that certainty arrives, the opportunity may have already moved.
The objective should not be to perfectly time the bottom. It should be to recognise value when the fundamentals support it and have the confidence to act.
Arjun Paliwal is the CEO of InvestorKit Group.
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