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Market Update:
16th July 2010
Quick Summary:
May Housing Finance (ABS)
Last week I outlined my reasons for why I'm predicting property prices will only increase by a small amount for the rest of 2010. Further data released this week supports that view. Specifically, although the total value of investor finance in May increased by 2.6%, owner occupied housing fell by 0.3%.
In plain English, what this means is that investors are propping up the housing market, but this can't and won't last because without strong home buyer demand, prices will soften and investors will look elsewhere. We are in that space now... home buyers are deferring, investors are readjusting and demand is softening.
Investing In A Cooling Market
Investors need to evolve and adjust to changes in market conditions. When times are good it's easy to make money because just about everything goes up in value. However, in a more competitive market, it's skill rather than luck that's needed to access high returns.
The 5 DO's When Investing In A Cooling Market
Here are 5 ideas that I hope will help you make informed, accurate and profitable decisions in a low-growth property market. Over the past few weeks it's become apparent that the property market is cooling. Price growth has stagnated, auction clearance rates are slipping, and the average 'days on market' is increasing.
#1 DO: Be Wise With Your Money
Avoid spending money you don’t have. There are lots of advertised discounts at the moment, but before purchasing, make sure you need the item rather than buying because it seems cheap. Being disciplined with your spending will help keep you financially fit coming in to more competitive times. How can you improve your financial fitness?
#2 DO: Continue Buying Good Quality Assets
Opportunity doesn't dry up in a cooling market - quite the opposite... buyers have more power to negotiate. Therefore, to take advantage you need to keep looking for good deals that fit within your investment strategy and have a realistic chance of being profitable. Have you stopped thinking about buying? If so, why?
#3 DO: Be Conservative With Your Assumptions
Warren Buffet is quoted as saying, "Only when the tide goes out do you discover who’s been swimming naked." Applied to the current property market, those who have made unrealistic assumptions or are inefficient with their investing will be financially exposed because the benefit of rising prices that cover poor decisions is gone. I recommend you hope for the best but do your numbers expecting the worst.
#4 DO: Be An Active Manager
When things get tough, don’t stick your head in the sand like an ostrich and hope everything will be all right. Roll up your sleeves and get involved in the decision making. What areas of your investing have you let go? What do you need to do to wrestle back control and move ahead?
#5 DO: Sell Under-Performers (on your terms & while you can)
Earlier this morning I bit the bullet and rang Chris - my stockbroker. I told him that it was time to sell some shares I had been holding for several years which had continued to under-perform. My basis for selling is this: If the asset under-performed during the recent stimulus led good times, how much worse will it perform in a cooling market? You’re backsliding if you can get better returns elsewhere but keep holding under-performers.
