Is the market too expensive? Maybe you aren't asking the right questions: Mal James

Well, the market seems to now be in agreement. We are officially, whatever that means, in a sustained upward phase or “boom”.

By our reckoning Inner Melbourne at the top end has been in a “boom” since October of last year (2012).

As the realisation of this hits buyers, the questions we are getting have changed from: “How’s the market going, Mal?” to: “When is it all going to end, Mal?

Our answer is: “Who knows?”, and also: “We think you’re actually asking the wrong question.”

Well, you’re asking the wrong question if you want an informed answer. Because, if we ‘experts’ had little absolute idea as to when the market started, it’s unlikely we should know when it will end.

In any case, is it that relevant anyway? For all we know, the ferocious rise of this current market phase may have already eased. On the other hand it could run, as per 2009, for 18 months, or for another six to 12 months as in 2007, or another 13 years as it did from 1994.

We leave prognostications of the future to the economists, as well as to the media commentators who manage to expound at length on the market on evidence about as skimpy as that used by pre-game footy commentators.

The really useful and good buying question, in our opinion, is not a general market-based one – it’s a specific property-based one: Is this home you are currently looking at a good buy?

More specifically, is it a good financial buy?

Let’s test some theories on the recent ups and downs of the market. In the previous boom markets, who made the good decisions?

Did those who bought homes in 2002 or 2005 or 2009 make good or bad buying decisions?

Did those who bought on the precipice of the falls in 2007 and 2010 make good or bad buying decisions?

The financial wisdom of proceeding rarely relates to overall timing. It relates more to the individual circumstances.

You can still buy very well in rising markets if you have the right fundamentals – the right land content, the right location and the right floorplan.

These are things you can control – unlike the ups and downs of the market. And these are what determine the wisdom of your decisions. We are happy to provide a solid list of buys we purchased in 2007 that had solid property fundamentals, and that were sold over the next five years with a significantly increased price.

The fact is, we have no idea when or indeed if the current “boom” will end.

Our predictions always relate to a longer term picture, as it is impossible to get the short term right anyway. The longer term picture says that the population increase from China, then India and then Indonesia, is fuelling demand for our schooling, space, minimal corruption, safety of money and person, stable politics, pollution and our relaxed lifestyle.

In terms of supply – well they ain’t making any more land! The auctioneers are right on that one.

And in terms of price – are we as a community going to build to increase or decrease our overall wealth and wealth generation possibilities?

So in this current boom, forget about when it’s going to end, and think instead about whether you are asking the right question with regards to making good decisions and buying well for the long term.

Mal writes weekly auction reports, advice and in-depth market analysis on James' website.