Home values are falling, it doesn't mean you shouldn't buy and sell

Last week I published my forecast of home values over the coming years and I made it clear that I expect that this downturn in the market is likely to be the largest we’ve seen in many years. It’s a risky forecast because when people have forecast large declines over recent years they’ve had a habit of not coming to fruition. Nevertheless, I believe that given all of the factors at play this downturn is set to be larger.

What usually happens in a downturn is that people stop transacting so we get fewer sales, eventually fewer listings too and this limits the decline and eventually interest rate cuts occur and reinflate the market.

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But if you’re a real estate professional, you are still searching for those listings and searching for those sales, even if both are more difficult to secure.

The fact is that it is very difficult to pick the bottom of the market if that is the reason for not buying or selling and people really shouldn’t be trying to do that. You sell and buy because it is the right decision for you at that time and you think the property you are purchasing will best serve your needs and you believe the property you are selling has served your needs.

In most parts of Australia the market peak has now passed or at the very least the rate of growth has slowed substantially and buyer demand has reduced. The likelihood of selling and getting a price as high as you would have gotten at the start of the year reduced but that doesn’t mean you should consider selling or purchasing and here are the reasons why.

Significant equity has been created in some markets

The growth in dwelling values has been incredibly strong over recent years in certain markets. Home owners have gained significant equity and with the market now easing it could be an ideal time to take those profits.

Your willingness to take profits could be entirely dependent on how much values have changed in recent years. For people that own property in Queensland, South Australia or Western Australia there have been significant gains over the past five and 10 years. Hobart has also seen strong value gains over the past decade as have most regional markets.

If you’re in Sydney, Melbourne, Hobart, Darwin and Canberra value growth over the past five years have lagged and Sydney, Melbourne and Darwin have seen value growth lag over the past decade too. Owners in these markets may be somewhat less prepared to take profits.

Profits you decide to take could be used to buy another property or maybe you want to wait for better buying opportunities. Keep in mind though that picking the bottom of a market is very difficult.

There is an opportunity to trade from high-value markets to lower-value markets

Although dwelling values have typically increased over recent years, as the earlier table highlighted, the rate of growth, particularly over the past five and ten years, has varied greatly.

Given this, there are opportunities for those that hold properties in high-value markets that have seen significant growth in recent years to trade out of their properties in these locations and look to purchase properties in lower value markets. This strategy could work for both owner-occupiers and investors.

In some instances you may be able to trade out of an asset that has seen significant growth over recent years into multiple assets in a market that has relatively underperformed. This can be a strong strategy to acquire assets which you believe are set to outperformin the future.

For others this strategy could be a way in which to clear some debt or remove your housing debt entirely.

There is an opportunity to downsize