It’s interesting to see I first wrote this blog in November 2015 and yet here we are… several years later… in the same cycle of the property market. The question still remains – what property prices fall the most in a buyers market? Well, my opinion remains the same today as it did back then. What’s important is understanding what makes a quality property in the first instance and what to avoid buying.
Contrary to popular belief, not all property prices fall when the market drops to a buyers market. In every area there are certain types of homes that seem to attract interest regardless of the market conditions at the time and may even increase in value while those around it will see price reductions. We estimate that these would comprise 10% of the market at best. The bulk of real estate will be affected by a market downturn, so where are the best bargains to be had?
Unrenovated properties are where you can often see the most marked price drops when the market slows down. In a sellers market, buyers can see an unrenovated house as an opportunity to get into an area that they are otherwise priced out of. For this reason, these are often hotly contested and end up selling for more than they should if the cost of the renovations was factored in.
In a buyers market, house hunters don’t feel the same panic about getting onto the property ladder and will usually have a lot more choice in available listings. The idea of putting your own stamp on a home loses its appeal when there are more affordable renovated options to consider. For this reason, unrenovated properties start to languish and take a lot longer to sell as buyers no longer wish to compete for them. Right now they are generally offering much greater value and the buyer is in the box seat when it comes to negotiating.
The other category where property prices fall the most in a soft market are the B & C grade homes that sold for too much in a hot market. In a sellers market nearly every property generates competition. So, buyers end up competing for good and bad properties alike.
When the market flattens and property prices fall, we see that quality real estate often still attracts competition while lesser homes take longer to sell and those that do sell tend to be very price driven.
Thus, inferior properties that sold for too much in the first place can dramatically fall in value if offered again for sale in a buyers market. But beware. Just because someone once paid too much, this does not now make this a bargain.
While we may recommend buying an unrenovated house in a slow market, we are unlikely to encourage buyers to pursue an inferior property that is offered at a low price unless there are some simple fixes to turn the sow’s ear into a silk purse.
We believe that property “bargains” are almost non existent as the secret to buying well is to identify a piece of real estate with a level of scarcity and characteristics that are desirable to buyers under all market conditions.
Updated: 12 September 2018
First published: 24 Nov 2015
DISCLAIMER: Good Deeds buyers tips are intended to be of a general nature. Please contact us for advice that is specific to your individual circumstances. You may also need to get advice from other professionals such as an accountant, mortgage broker, financial planner or solicitor.