Investing in real estate is, in part, about timing the market – or buying at the right time during the cycle – and it’s about time in the market, which is how long you hold onto a property for.
Ensuring you hold your property for enough time to really see the value of your investment grow is important, as holding for the long-term means you may experience multiple lucrative property booms. But there’s nothing wrong with hoping to time it just right to make the most of the cycle.
This is where the concept of a ‘property clock’ can help. The idea behind this clock is that, instead of showing time, it shows you how a property market is faring. Of course, every state, city and sometimes even suburb, will be performing differently, so you should apply the clock with care and your own understanding. Here is how the clock works.
What time is a good time?
When a market is said to be at 12 o’clock, it’s a booming property market. This is known as the “peak” of the market. Usually, this is when euphoria about real estate reaches fever pitch, auction clearance rates are high and there has been a surge in prices. You might notice increased coverage of property in newspapers and other media, and homes selling within days of listing. Off market sales also flourish in this type of a market, and you may find yourself regularly gazumped.
Any time to the right of the clock is a falling market. This typically comes after a boom, and sees prices falling, concerns about the market kick in and there is an overall slowing.
When the market is at 6 o’clock, it is at the bottom of the cycle. This is typically when auction clearance rates are low, property takes much longer to sell – you may see the same listings languishing on real estate websites – and agents will be more likely to return your calls. In this market, typically after falling prices, people are worried that prices will go even lower and they hesitate to buy. This is a time of fear for many who own homes and it often coincides with higher interest rates. However, at the bottom of the clock, prices won't fall any further.
To the left of the clock, between 6 o’clock up to 12 o’clock, is a rising market and prices start to climb. Euphoria kicks back in and buying activity increases.
Time to buy and time to sell
The most profitable time to buy is at the bottom of the market, at 6 o’clock, when prices are at their lowest. The best time to sell is at the top of the market, at 12 o’clock, just before prices slump and whilst buyers are still anxious to purchase.
The difficult part of timing the market, is that it can be hard to know when you’re at the bottom or the top of the clock as there’s no sure-fire way of knowing you’ve reached the end of a specific part of the cycle. There’s also no guarantee how long each period of the cycle will take to pass. However, even those who buy during the early upswing or near the end of the downswing, and sell around the peak, can do well.
Also consider how experts use the clock. Property valuers Herron Todd White use this concept across the country to determine how different areas are performing. Their own measure for houses in May 2018 puts the Central Coast, Coffs Harbour, Newcastle and the Mid North Coast at the “peak” of the market, with Alice Springs, Darwin, Perth, Bundaberg, Rockhampton and Toowoomba at the bottom of the market. Sydney is a declining market, while Melbourne is approaching its peak. Apartment results are similar.
Using the property clock can be a good tool to get yourself thinking more strategically about when to buy and sell in different markets. It can also help you compare different locations for future investments.