Wisdom in selling in a buyer's market

It has been kind of fun sitting on the sidelines, watching the various residential property data houses bicker over who is correct, who got the biggest headline or the most media coverage. Heck, some even now boast about how much press they are getting. I thought having celebrity cooks was scraping the bottom of the barrel, but now we have big-shot economists and property commentators to boot. Is there no end to this celebrity cult?

Now let’s clear the air before I go much further.  Residential asking prices are falling. We stated they would and that they could fall by as much as 5% to 8% this calendar year, maybe more in Queensland. They might fall even further, but that is dependent on what happens with interest rates, employment, supply and confidence.  How baby boomers and recent first-home buyers act (and react) in the near future in also important. Assuming, and maybe it is a big assumption, that the worst doesn’t eventuate, the housing cycle will right itself and, over time, the declines in asking prices will be regained.

Note the emphasis on asking prices. Extremely few sellers are making an actual loss on their resale.  hey are getting more than they paid for it – in terms of purchase price and all hard costs. What is attracting all the media hype is the difference between what a vendor wants for a property (nearly always inflated, if you ask me) and what the market is prepared to pay. This happens in a buyer’s market, when the amount of property listed for sale is greater than the demand. It happens in every industry. Heck, I have never paid full price – outside of basic staples – for anything.

Property is an interesting investment class. Yes, I subscribe to the notion that housing should be a home first and a means of accumulating wealth second, but under Australia’s current taxation laws, it makes financial sense to try to maximise the capital growth of your home. Most do these days by renovating a home, living in it for a period time, and moving on – all of which is tax-free. But home owners only really like doing this when it’s a seller’s market. Statistically, this makes little sense at all.

When prices are rising, sellers will happily sell their home for more than they expect, only to buy in the same market and pay more (than the vendor expects) for someone else’s house.  Now most will sell and move because they want something better (or different) than what they have already. The data show that in a seller’s market most sellers will pay more for their next home than they actually made from the one they just sold. But I suppose they did have a “win” after all – i.e. they got more for their house than they expected.

Now, reverse the situation – a seller in a buyer’s market is reluctant to discount their home to the extent needed to make a relatively quick sale. (Remember, my friends, a successful real-estate agent gets the vendor a quick sale, not necessarily the highest price.) Doing such is perceived as a “loss” to the seller, though in most cases it actually isn’t a real loss at all. Yet in a buyer’s market it is in their best interest to sell quickly. Why? Because they will be buying in the same market, and the statistics show that if they discount appropriately and sell quickly, they can often gain more than they lost when buying again.

Most trade property way too late in the cycle. Now, despite what we hear, is a great time to upgrade. You might be surprised at how much you can actually save by doing so now.

Now back to our property celebs. If you are going to run these silly lists outlining the most discounted properties on the market, do some real homework first. And in particular, stop using these examples as the means to judge the overall health of a city or region’s housing market. The happenings on South Stradbroke Island or the listed price drops of a grossly overpriced bit of dirt wedged between a quarry, the M1 and a major arterial road have little relevance to what is happening across Brisbane or the Gold Coast.

If I wanted to get some media coverage on a “fringe” property, I, too, would milk the system in a similar way. You should be quarantining these listings as “out-of-line”. A serious analyst would.

Mainstream asking prices, by the way, are not being discounted by 30% to 50%. What is taking place are the usual price negotiations that occur during every buyer’s market phase of the property cycle.

How about you guys start using some real practical examples – pick some mainstream properties, with vendors who are realistic yet not distressed (as only a small percentage really are), and share with us your findings. In Brisbane you will find discounting of up to 10%, with many sellers having made up slightly more than they lost on their next purchase and, in real terms, very few being left out-of-pocket.

But that won’t get you much media coverage will it? Nor a gig on Channel 7’s Sunrise or the ABC’s Lateline Business. Let alone over a week as the top-billing article on Fairfax’s Domain.com.au.

Michael Matusik is the director of independent property advisory Matusik Property Insights. Matusik has helped over 500 new residential developments come to fruition and writes the weekly  Matusik's Missive.