This is a step by step guide on how to use the current lending environment to your advantage. Every change in the market provides an opportunity and there are plenty of opportunities in the current environment for would be home buyers. A famous quote from Warren Buffet,
“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
To start off, it’s important to understand what has been causing the current change in the housing market and why there is so much negative media around housing prices at the moment. It was a number of things that built up the market and a perfect storm that brought it to a screeching halt.
Here are a few reasons (not all) why we had such an increase in property values. To start with, for a number of years Australia has been flooded with overseas investors buying into the property market, soaking up the supply, increasing demand, on top of this many local investors were also building their portfolios with interest only loans, you then throw in some cheap credit and an ever increasing population and, well, things get a bit crazy. To put it short, FOMO is real and when it’s hot, it’s hot. Prices went through the roof and banks were the main driver, lending out more money to people than in Australia’s history.
Now, let’s look at what’s changed. Banks have made it harder for overseas investors, they have all but frozen interest only loans, they have clamped down on investors with multiple properties, the royal commission has made banks a lot more cautious and they are now taking more scrutiny to people’s income and expenses before lending money for homes. This has been the main driving factor preventing people from being able to borrow as much as they used to. But don’t worry, I’m here to tell how that’s a good thing and how to use it to your advantage.
Currently, the housing market (especially in Sydney and Melbourne) is struggling. Many vendors are simply not getting the offers they used to get, auction clearance rates are falling through the roof going down to 43% in Sydney and 46% in Melbourne. However, let me start by saying that auction clearance rates don’t necessarily represent the number of buyers in the market, it simply represents the number of homes not selling above the vendor’s reserve price. So, if you see “passed in” it means that the vendor had offers below what the reserve was.
Two things need to change to improve this, 1) vendors need to accept lower prices or 2) buyers need to put up more cash. The probability of option 2 will be the least likely to happen. Buyers are simply not getting the same levels of mortgage debt that they once were, but this is happening to everyone. So, if you have recently gone for a loan and got approved for less than what you hoped, don’t stress. Everyone is in the same boat, which makes the coming months and years, the best time to pick up a bargain.
Your guide to picking up a bargain in a falling property market
Step 1 Get pre-approved
This first step is finding out what your borrowing capacity is and what loans are available to you. You can get answers for different loans on www.herobroker.org to which you can review loans independently anhttps://www.herobroker.org/wp-admin/plugins.phpd connect with a broker to assess your situation and what goals your trying to achieve.
Step 2 Research
Often it’s your local area that you will know best. Before thinking of researching some mining town, it’s best to look in your own backyard. Commonly, you already have a good feel and know the history or your local area pretty well. Coupled with some extra research, you will get a good sense of what’s good value in your area and have a better feel for what’s a good offer to make.
Step 3 Place your bid
The key to getting a good price is to be a patient bidder and take your emotions out of the purchase. The market is filled with investors and many are looking to exit the property market. Once more, due to changes in interest only loans, many more will be looking to sell in the future. Knowledge of this is critical, don’t be disillusioned that you may miss out on a purchase by making a low offer.
Remember that you are now in a buyers’ market, so don’t get pushed around by any real estate agent. Go in low and don’t back down. Remember as I said before, many are in the same position when it comes to borrowing capacity, so there is a good chance many others will also be bidding below the advertised sales price.
Step 4 Negotiate
Use the credit crunch to your advantage. When negotiating, inform the vendors about the current lending environment, this will be an educational piece than anything. You need to get across that they will not be able to get 2017 prices when the banks are lending much less in 2018/2019. The thing is, a vendor can ask any price they like, the reality is that people can only offer the money they have.
Step 5 Don’t stress
Take your time with buying your dream home and once you have made a purchase don’t stress about living in your home. Use the doom and gloom to your advantage but don’t buy into it. Just enjoy your property, focus on making it yours and paying down your mortgage as quickly as you can.