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How important is timing the market?

Tuesday, 22nd Jan 2019

Perth’s property market has been the subject of increasing media attention in recent months, with growing speculation as to where the market is in terms of the property cycle. Whilst there have been clear improvements in the State’s rental market, many buyers are questioning when this recovery will translate into further price growth, with some sources implying the market is already picking up whilst others suggest we may see prices fall further before they improve.

This can present a difficult scenario for investors who are trying to time the recovery and enter the market just as prices start to pick up. However, whilst it may seem like a simple strategy on the surface, timing the market isn’t always as straightforward as it sounds, and it can also become a costly strategy for investors who get it wrong. So how important is getting this timing right, and what should investors focus on?

The early bird gets the worm

Investing just as the market starts to recover is a great strategy in theory, but predicting the best time to buy (and equally sell) is an extremely difficult thing to do, even for the most seasoned of investors. Most investors will often try to hold off until they see signs that prices are rising and other buyers are returning to the market. The problem with this, however, is that by the time there is sufficient evidence of price rises, the most lucrative deals and the best opportunities for negotiation have often passed, and the market has already entered its upswing. Investors who enter the market at this point will then be faced with stronger competition from others buyers, and in many cases will have to pay more to secure their property of choice or risk losing out on great investments.

Focus on the long term

Understanding the different indicators of the property cycle is undeniably important for investors looking to maximise their potential profits and mitigate investment risk. However, buyers who focus too obsessively on timing the market also run the risk of compromising their long-term investment goals in the process. In many cases, investors become so overwhelmed by the prospect of buying at the wrong time that they end up delaying their investment decisions, investing too late, or even not investing at all. This time out of the market can ultimately prove more financially detrimental than buying a good property when market conditions are slightly less favourable.

Stick to the investment criteria

Another danger of focusing all your efforts on timing the market is that investors can risk overlooking other factors that are equally (and if not more) important to their long-term profitably, such as the quality of the asset itself. In reality, a poor quality “bargain” bought in the right market conditions will still hinder the performance of a portfolio more than a high quality property bought in a hotter market. Regardless of where we are in the property cycle, selecting a property with the right growth fundamentals in place (even if it isn’t yet the ideal time to invest) will always remain paramount to the long-term performance of an investor’s portfolio, and will far outweigh the benefits of buying a poor quality property because it seems like the right time to do so.

Timing is important, but it isn’t everything

There’s no denying that there are benefits to getting the timing of the market right when it comes to maximising profits. In an ideal world, it would be great to be able to buy a high quality investment property when prices are at their lowest and sell when property prices are at their peak. However, predicting exactly when a property market is about to turn is unrealistic for the majority of investors, and it certainly shouldn’t come to the detriment of good investment opportunities.

Whilst you don’t want to be overpaying for a property at the market peak, if you’re investing with a long-term outlook, timing the market perfectly shouldn’t be the be-all and end-all of your investment strategy. After all, providing you know a market is near or at the bottom, any short-term variations in price will likely have little effect on your long-term returns. What is important, however, is selecting a property that has the right fundamentals in place to capture these opportunities for growth and ride out any short-term volatility during the course of the cycle. The gains you make from focusing on this end goal and selecting a property that performs well in the longer-term can far outweigh the potential perks of getting the timing of the market exactly right at the time of purchase.

If you are interested in learning more about opportunities in the Perth market, contact our buyer’s agents today to organise an obligation-free consultation, or request a copy of our latest research report, Perth Private Spending Report 2019.