Making Good Decisions this Winter
- How to avoid the Winter Home Hunting Blues
- Why making Good Decisions are as important now as they ever have been
- To buy or not to buy – the arguments on both sides
- Ideas for some Good Goals
How to avoid the Winter Home Hunting Blues;
a. Take Stock: If you don’t have a lot to look at this weekend, go and choose a really good coffee house (such as Porgie and Mr Jones in Auburn Rd, Hawthorn East or Coin Laundry Armadale St, Armadale or The Little Ox in New St, Brighton). Do this without the kids, sit down and have a chat and a think.
If you are feeling frustrated, annoyed, scared – well, perhaps ‘chill’ for a moment, as they say.
Buying a home should be a 20 year decision. Even if you have been looking for a year, you are probably less than 5% into that time frame. Unless you’re aged 90 and hoping to get the first home buyers bonus, you have got time.
Right now the market is on the side of those who are considered and patient.
If your frustration is escalating, consider a change of habits. Very few properties are selling on the first day they hit the internet. (Although it’s true that a few are being bought off market or before auction and for that you need a plan.) But looking at the internet four times a day, like a teenager constantly checking their Facebook page, will not help your mental state. And your mental state is so important in home hunting.
Try not to be afraid that you’ll never find something. Unless you are a Martian with unique requirements, you will find a home. Right now stock is short for lots of people, but things will improve. Don’t buy crap out of a sense of frustration.
If you are in the wrong head space you can end up making poor decisions – and those poor decisions can affect your whole life.
b. Review your results –So you’ve been looking all this year. How did you go? Have you bid on anything, were you close or have you not found anything of interest?
Back in 2010, if you hadn’t found anything after looking for six to twelve months, our advice would have been to look at your requirements and see how realistic you were – because in 2010 there was a lot on offer. However this is 2012 and the levels of correctly priced, exciting stock have been considerably lower. So your goals may be reasonable, it’s just there’s little stock choice. Our best advice is try not to make a kneejerk reaction to shift to a different set of goals without considerable thought.
c. Consider changes – In 2012 we suggest you take a more general overview. That’s code for ‘don’t be too hard on yourself’. Even if you haven’t found your dream home, think about whether you have seen homes within your price range, type and area that are similar to what you want? If your answer is ‘Yes’, our advice is don’t change course – be patient. If your answer is ‘No’, then it may be time to consider a different suburb, a different type of home or more money. Dare I say it– it may be time to seek professional advice to ascertain your best options.
d. Reinvigorate your plan – Take the next couple of months to review. When the school holidays have become just a painful memory and we are heading into the footy finals and starting to see the first flush of early Spring home releases, that will be the right time to smarten up you act. Spend some time now on getting clear on what you can do, getting motivated on what you want and resting so you are set to go when the stock options improve.
Why is making good decisions as important as ever?
In the late 1990s and early 2000s the consequences of decisions were not quite so obvious due to runaway capital growth pretty much right across the board. Even a bad decision was a good decision because almost anyone who bought was better off than those who didn’t.
Over the past 7 years or so (traditionally one property cycle), since around 2006/2007 the game has changed. When it comes to home buying, there is now a significant gap between those who have made good decisions and those who have not.
Good Decisions: We can give you specific examples of clients who have bought since 2007 and who since that time have seen 50% increases in buying and selling. One home that was bought for $1million in 2007, for instance, sold for $1.5m in 2012. Not that we have encouraged such quick turnaround – but sometimes circumstances change.
Poor Decisions: We can also point to sales that have resulted in up to 20% losses since 2007. We have seen some substantial losses in the Golden Mile Brighton, as well as a Period Home in Elsternwick with a big auction and even homes in Boroondara. If you bought a $2m home in 2007 and sold it for $1.7m five years later, that is a substantial loss.
Highlighting the good decision v bad decision numbers.
Back in 2007, the $1million buyer and the $2 million buyer were $1 million apart. Now in 2012 they are only $200,000 apart. Meanwhile, the buyer who made the good decision has had to pay only half the mortgage repayments of the poor decision buyer. Sure, this is an extreme case, but it has happened.
The Winter of 2012 is a time to keep making good home buying decisions.
So how do you make good decisions?
Let’s start off with the Winter 2012 $M+ Dilemma.
Is it a good time to buy or is it a good time to wait?
The Argument for Waiting – Renting
- We all need a roof over our head.
- What is the difference between paying rent to a landlord and rent to the bank (that’s what a mortgage is – you are renting money from the bank with the interest you pay).
- On a $2 million home that you resell in 2 years for the same price (if you sold it because it was a bad decision) you may have spent say $300,000 – stamps ($110,000), reselling fees ($60,000) and mortgage payments ($130,000). Now if that home went down in value and you had to sell it, it’s quite possible you could end up with a half million dollar loss on top of that. If however during that same time you rented a $2 million dollar home, your total outlay would be somewhere between $80,000 and $120,000 for rent.
- Renting in that scenario on a $2 million home could be a $200,000 to $400,000 better decision.
Suggested guidelines if you are to rent.
- Are you new to the area? Rent a home in the area you are planning to buy in, as this should help you understand the subtle nuances of precincts.
- Rent a good home. If you rent a crap home just because it’s cheap, it may be counterproductive, as all you will want to do is rush to leave. That puts pressure on you buying a home, which can often be negative as you are forced to make a hurried decision.
- Rent for 12 months. In this market it may well take you some time to find the dream home.
Important Rider: We are making a case for short term renting as a way of giving you time to find and buy the right long term home. But long term renting is rarely the answer to long term emotional and financial happiness in Melbourne. We have met very few rich and long term happy renters.
The Argument for Buying Now – Trading Up
Most selling agents have begun to trot out the line that now is a good time to buy if you are trading up. We have to agree.
In this market, the gap between lower priced and higher priced homes is getting smaller. Therefore if you can find a good home now (and it is still possible) then trading up is certainly better now than it was during the stronger market of, say, early 2010.
Say in early 2010 when we had a strong market and lots of stock, your $ 1.5million home had one bidder and you sold it for $1.5 million. And then you went and bought a $3 million home that had three bidders and you bought it for $3,200,000. At that time the mortgage gap was $1,700,000.
In 2012 your $1.5 million home may have had two bidders and sold for $1,420,000 - prices have dropped a bit but because stock is short on good family homes at your level and you priced it correctly, you had bidders. You had already bought a ripper $3 million home off market that was negotiated over a 3 month period for $2,720,000. In this case the mortgage gap was $1,300,000.
Similar houses – different times. You’ve also paid $20,000 less in Stamp Duty and your mortgage is cheaper to maintain. $1,700,000@ 8% = $136,000 as opposed to $1,300,000 @ 7% = $95,000. Yes the figures are approximates but you get the drift.
Of course it needs to be the right long term home – a good decision. Buying now because rates and prices are cheaper only makes sense if it’s a GOOD decision for your long term emotional and financial happiness.
So let’s go back and finish the Coffee Shop Winter Review
How to formulate some good goals?
Here are our Top half dozen thoughts when setting specific home buying goals.
- A home that will take you through multiple stages in life –this is our number one goal in assessing a good home as it lowers risk and gives you the greatest flexibility in fluctuating markets. Our favorites are homes that can meet your changing, foreseen and unforeseen needs.
- A home that has a mortgage level that allows you to live – a home isn’t your whole life.
- A home and a position that has a real emotional connection with you and your spouse. Please don’t underestimate the adage of ‘happy life – happy wife’.
- A home that has four excellent characteristics:
- Characteristics that many others want now in its current form and should still want in 10 to 20 years – e.g. renovated but with a façade and feel that is not too cutting edge – period is safer.
- Good land content
- Excellent location
- Market Price
- Position to secondary schools, business and family – to reduce long unnecessary repetitive travel times
- Renovation and New builds can get you what you really want. But for those on a limited budget you need to understand this sort of plan is higher risk and often more expensive than buying an existing, ready to move in home.
In summary, our 2012 Winter in Review – the half way point
- First and foremost, maintain the discipline of making good decisions. Change your routine to reduce frustration as keeping stress down will reduce the chances of poor decision making.
- Take a Breather if you are burnt out – it’s mindless and pointless to be checking the internet daily let alone twice or three times daily .
- Don’t be afraid of renting
- Don’t be afraid of buying now
And finally, consider getting professional buying help. Of course we’d say that. But thousands of people use advocates for many reasons. And the number one reason for getting professional buying advice when purchasing is that smart $M+ homebuyers want to make good emotional and financial decisions.Email This Article to a Friend