July 2009 - The market is confused. There’s increasing evidence that activity in the property market is looking a little less bleak, but activity levels for the first half of this year (i.e. number of deals done), are still only 92% of the same period in 2008. And 2008 was low when compared to the previous three years. Volume has increased progressively in April, May and June, but despite more positive indicators than we’ve had for months, both sellers and buyers remain decidedly jumpy!   Is this a plateau in an otherwise downward spiral? We don't think so.

The market has experienced, in real terms, drops of about 35% to 41% from the highs of June 2005. The speed of the fall has been unprecedented, but purchasers are having difficulty knowing whether a property is priced at this lower level, or whether it’s still on the market at an optimistic level. There has been such a reduced level of transactions that there’s sometimes nothing to measure against, no comparable to give you a sense of what the price should be, no market. There will still be a few more bumps and wrinkles, but we believe we are bouncing along the bottom and there are great bargains to be had.

Our advice would be to try to find comparable property that sold in 2006 to early 2007, and then subtract 35% - that’s a good starting place. Additionally, go back to 2003/2004 where you may find more comparables and expect today’s prices to be similar to those. We ask the selling agent how they arrived at the price – is it what the seller wanted, or have they used recent or historical comparables? Many selling agents are having to put property on the market at an inflated price, but the owner is reconciled to the fact they will have to accept a low offer. There’s a lot of psychological game playing, so if you’re a buyer, negotiate as though you were shopping in a Turkish bazaar.

Being at, or near, the bottom of the market is a great place to be in buying terms. However, buyers shouldn’t expect to see the value of property increase in the short or possibly even medium term. We are in the unusual position where inventories are coming down, but not enough to make prices rebound. The market is reliant on available financing and confidence.

So who is (and who should be) taking advantage of low prices and cheap money? Anyone who’s been fortunate enough to have sold before the market went into freefall, or who is in rented accommodations because they chose not to buy at the top should be taking this opportunity to get into the market. The interest on their capital will be struggling to finance their rental fees, so unless they can only make short term plans, it makes little sense to stay out of the market now. Or, if you can afford to buy now and rent out your existing home for five or six years, it might make sense to take advantage of low current interest rates.

Many Investors are starting to take advantage of low prices and the expectation of a strengthening rental market, due to the Air Force Base Realignment and Closing (BRAC) plan. Gross rental returns of as much as 7% are achievable if they buy wisely, and if they have enough equity to qualify for attractive finance offers.   Generally speaking, things look fairly positive. The money supply is slowly easing, and when reluctant sellers are convinced that there are active buyers out there, prices will inevitably inch back up......