With the current age of information, it's easy to get caught up in the array of news stories, articles advice, and opinions from self-proclaimed experts. And, out of all this, it can be hard to see what the truth is.
Falling down the rabbit hole and blindly taking incorrect advice can lead to negative outcomes due to poor investment choices and lack of direction.
That's why you should always rely on evidence-based research to answer all the questions you have.
In this explainer, we will delve into what data is traditionally used to indicate what a soft marker looks like, and from there, how to best take advantage of that situation.
As a savvy investor, you are always going to be searching around for a good deal, and knowing when you're likely to get one will help you pick up the best opportunities when they arise.
In almost all investment markets, the best time to pick up a deal is when the market is down and you can purchase at a discount. In real estate, this is when we enter into a buyer's market.
This is normally characterized as "a market where there are more sellers than buyers".
When there are more sellers than buyers, prices tend to drop in order to boost the demand for the goods and services being offered. This is great news for purchasers.
In real estate, a soft market generally means there are more listings available than there are buyers in the market. This means that the sellers (i.e. developers/vendors) are willing to discount prices or offer incentives
It's all well and good to know that one of the best time's to buy is in a buyer's market, but what are the traditional indicators of a soft market?
One of the most common indicators is a metric called 'days on market'. This essentially tells us how long, on average, properties are listed on the market before they sell.
In a hot market, properties don't stay on the market for very long, and conversely, in a soft market, properties tend to stay on the market for a much longer time.
Let's look at some real-life examples of this.
In November 2021, the property market was at a record high and REINZ (Real Estate Institute of New Zealand) reported that the days to sell during that period of time was 29 days. In contrast, the real estate market in August 2022 is much slower and the days to sell have increased to 49.
This rise in days to sell shows that sellers are having to work much harder to get deals across the line and this often leads to a softening of prices.
During slow markets, vendors often switch from one agent to another until they get a sale across the line. In these situations, the sellers are very motivated to make deals happen.
The benefit of a buyers market isn't just price negotiation though, it's time.
During a buyer's market, investors generally have longer to conduct all their research on a property before formally entering due diligence. Because there are fewer buyers in the market, investors can take advantage of the higher days to sell and do more research.
This allows time to make more rational decisions and consider the wider array of properties that are on the market.
Regardless of where the market is, it always pays to seek advice from industry experts who can provide you with evidence-based research to assist you with your decision-making process.
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