Pros and Cons of Buying or Selling first

Moving to a new home means you’re going to have to do something about your old one. But which action will you take? Will you sell it before moving? Or should you jump the gun and secure a new property while still living there? This is the age-old question that owners can spend a significant amount of time thinking over. Weigh the pros and cons of these options to ensure you pick the best one for you.

Pros and Cons of Buying or Selling first

Weigh the pros and cons of these options to ensure you pick the best one for you.

Buy First

Pros:

  • You will have a home already secured so you won’t stress if your old home sells quickly.
  • May have the ability to use equity in your current loan as a deposit for your new home.
  • You can spend as much time as you like shopping around for a new home for sale.

Cons:

  • You might have to organize bridging finance between the two properties, giving you a time limit. This might limit the time you have to selling your old home.
  • If your old home sells at a less-than-desirable price, you may have to fund the difference in costs.
  • You might feel pressured by time and accept a lower offer.

Sell First

Pros:

  • The proceeds from the sale of your home can be used on your new one.
  • You will know exactly how much you can spend on your next purchase.
  • Time is on your side, so you’ll have the freedom to negotiate deals and offers for a better price.

Cons:

  • If your home sells quickly, you could be left to make a rushed purchase on a new home so you have somewhere to live.
  • Local property prices could rise in the time between selling and buying a new home.
  • You might have to spend more to rent accommodation while between homes.

Timing Your Market Move Matters

Through understanding exactly what influences the ebb and flow of property prices, not only can you help secure a family home that will deliver good capital growth, you may also tap into market opportunities other buyers may not be aware of.

Every Property Market Runs in Cycles

While Australian property prices typically track upwards in the long run – on average Australian home prices double in value every eight to 12 years – every property market runs in cycles.

Through understanding exactly what influences the ebb and flow of property prices, not only can you help secure a family home that will deliver good capital growth, you may also tap into market opportunities other buyers may not be aware of.

Supply

Property prices are influenced by the very simple concept of supply and demand – just like fruit and vegetables. The stronger the demand, the greater the propensity for a rise in prices and vice versa.

Supply is a simple concept, influenced by the availability of land and housing in the area and the current level of construction activity. Tight supply can push prices higher while oversupply can lead to a slump.

Demand

Demand is driven by a range of economic factors. Interest rates are perhaps one of the biggest influences on housing market activity and consequently on house prices.

When interest rates are lower, for example, buyers are more likely to purchase property as the cost of borrowing is lower – driving stronger demand and possibly pushing up house prices. In contrast higher interest rates can take the heat out of the property market substantially.

The health of the overall economy also has a major influence on property prices. A strong economy where consumers are confident, have strong incomes and access to credit, can all foster strong property market activity.

Unemployment is also a very good indicator of the state of the property cycle. Rising unemployment usually has a dampening effect on the market as consumers become cautious against taking on debt in case of job losses.

However a declining unemployment rate can be a good indication that the property cycle could be heading for an upswing. Consumers become more confident about their job security and demand therefore starts to improve.

Pick your Timing

There is no easy way to put a timeframe on the property cycle; it is just a matter of monitoring the economic environment and market conditions as they fluctuate.

While certain fundamentals, such as those mentioned above, can influence the property cycle, there are also exceptions that can shift supply or demand. These can include one-off government incentives such as the boost to the first home owner grant, incentives for builders and investors, or the overall availability of credit.

But by having a general understanding of the major forces, plus keeping a regular eye on news reports, you will be in a strong position to make the most of the fruits the property market can offer.

At a Glance – Phases of the Property Cycle

Upturn – Astute investors start to recognize and act on opportunities in the market.
Boom – More buyers rush to market to take advantage of prime conditions pushing prices upwards.
Downturn – Oversupply of new properties to meet demand or rising interest rates eventually put a halt on activity and stop price growth. The bigger the boom, the greater the likelihood of negative price growth during the downturn.
Stabilization – A period of time between the downturn and the beginning of the next upturn.