Is 2023 a good time to buy a property?
With interest rates going up and signs of a cooling property market around Australia, many investors are wondering if 2023 is a good time to buy or wait and see. In this article, I’ll talk about why it may or may not be a good time to buy and go through my personal plans for 2023.
Why it might not be a good time to buy
At present, we’re seeing a short-term drop in prices caused by rising interest rates, resulting in all borrowers taking a hit on their serviceability. This, in turn, leads to lower budgets, lower demand, and a cooling of prices.
I can understand why a lot of buyers want to wait and see if property prices go down further before they get in. No one wants to make a major purchase that goes backwards in value. And, of course, why pay more now if prices are going down in the near future?
Despite all that, I am personally looking to buy in 2023. Here’s why.
Long-term strategy
Time in the market is always more effective than “timing the market”.
When you buy property as an investor, you must think of it as a long-term proposition. It's not the same as purchasing a residence for a few years until your family grows larger or buying houses to flip in a few months. Even if I buy a good property in 2023, its value may go down in the short term. But history has shown it’s value will increase in the long term.
My strategy has always been to ride out the ups and downs in the market and go after those long-term gains. You have to be confident in the cycles that have historically yielded profits for those willing to be patient.
Whenever I buy a property I always ask myself “do you think this property will double in value in the next 10 - 15 years?” And if the and if I think it will - I will buy it.
Chart: Median house prices over 30 years (source: CoreLogic)
Chart: Median house prices over 30 years (source: CoreLogic)
2023: The year of opportunity
Depending on your particular market, the current cooling period could be an ideal window to buy a property compared to 2021 and early 2022. Whilst many people viewed the recent cooling of real estate prices and competition with alarm, I actually believe this a positive change because it gives us buyers more negotiating power with agents and sellers. When the market isn't quite so hot, you don't have to fear adding contract terms like a building & pest inspection or requesting a specific settlement date, when making an offer. And sellers are more likely to accept early offers at asking or less, rather than holding out for a higher bid.
Today’s opportunities would not have been possible in the ultra-hot markets of 2021 and 2022 when you would have been lucky if an agent picked up or returned your phone call. No one wants to waste hours chasing agents or viewing properties and preparing offers only to have them rejected out of hand. In a slower market, you can enjoy the probability of getting through to agents and having a chance to negotiate a deal that works for you and the seller.
Less competition
Rising interest rates have been wiping out a lot of investors who could have been my competition to buy a strong asset. This trend is like a big wave that is gradually eliminating people with lower affordability and serviceability each month. Financially, you could see it as survival of the fittest.
So, I believe it's a perfect opportunity for me to secure a quality asset and make the most of it while competition is low. I don’t want to find myself waiting so long that I become a victim of that big growing interest rate wave either.
Is there another property boom around the corner?
Remember what happened to the market post-COVID?
Currently, a lot of people have been wiped out of the market and forced to sit on the sidelines. Once interest rates come back down and they are able to get back in, they are going to want to come back with a vengeance and want to buy! This is exactly what happened after COVID, which caused a record surge in prices.
After the pandemic, many people had so much money saved up but couldn't spend it.
Thrown into the mix is the fact that the government kept interest rates at record lows to boost the economy. Access to money was cheap!
A lot of these people were ready to buy in 2020 and, for a variety of reasons, couldn’t buy during the pandemic — or they didn’t buy because they were scared and decided to sit on the fence and wait. When the worst of COVID was over, there was a flood of buyers re-entering the market with more savings, more affordability, and more urgency, and record low interest rates leading to record growth in house prices.
How is this relevant in today's market?
I’m convinced something similar is going to happen when interest rates eventually start to come down. When interest rates begin to drop, those who have been forced to steer clear of real estate investments in 2023 will re-enter the market. This will increase demand and create more competition, leading to price growth.
Will it be a "boom"? I'm not sure. I think it will be more gradual than what we saw in 2021. But I definitely foresee a recovery from what we are observing today.
Key takeaways
Property investing is a long-term game. Therefore “time in the market” is always more effective than “timing the market”. If I can buy a good asset — one I know will increase in value in the long term — then I'll buy it. And a current cooling of market conditions in the short term is not going to worry me. It’s all about how much I think it will be worth in 10 to 15 years.
For me, I think 2023 is a year of big opportunities. I want to buy now while the competition is low. And when competition and demand pick up, I can enjoy sitting back and watching my assets grow in value.