‘Better off waiting’: When you should have bought a house

More than half a million Australians bought a home in 2021 during the COVID property boom, but there has been less growth in the value of those homes than for people who waited a year, new analysis reveals.

CoreLogic figures show 5.3 per cent of Australian homes last changed hands in 2021, which was about 549,000 sales. Since then, home values have grown 7.6 per cent. In comparison, 4.5 per cent of homes last sold in 2022 and values have since grown 13.1 per cent.

CoreLogic head of Australian research Eliza Owen said a perfect storm of market influences whipped buyers into a “frenzy”.

“Many Australians were incentivised to buy in 2021 because interest rates were low and values were rising quickly … and the HomeBuilder incentive was also in play for the first four months of the year,” she said.

“But there’s also a winners’ curse associated with buying in the hot market. You might have been winning and getting access to a home but you’re doing it in an environment when prices were rising, debt levels were rising … 2021 doesn’t look like it was the best time.”

The cash rate was at a rock-bottom 0.1 per cent that year, and buyers armed with cheap loans and lockdown savings sought larger houses with space to work remotely.

Owen said there had been more growth in the value of 2022-era home because steep price falls, caused by rapidly rising Reserve Bank interest rates, meant buying property was cheaper than the previous year. Therefore, 2022 values had further to rise than 2021 values.

“They started falling sharply in May 2022 and didn’t make a full recovery until November of 2023,” she said.

“To that end, people who bought in 2022 were buying in a dip, if you like, and that means they had more to gain since values started recovering in 2023.”

AMP chief economist Shane Oliver agreed 2021 was the peak of the market, and said market peaks were typically worse times to buy.

‘[During a boom] is certainly not the best time [to buy] … people show up to auctions and end up making rash decisions and paying too much.’

AMP chief economist Shane Oliver

“By the beginning of 2022 [the property market] started to run into trouble as interest rates went up,” he said.

“The trouble is if you bought in 2021 you were buying at the high point … you would have been better off waiting for the boom to pass in 2022.”

Oliver said people tended to feel more pressure to buy during a hot market, even though it was more difficult and a less financially sound decision.

“FOMO kicks in. Whether you’re an investor or an owner-occupier, you fear if you leave it too long you’ll have to pay more,” he said. “The history of Australian property markets adds to that sentiment, because the tendency is for the market to trend upwards over time.

“[But during a boom] is certainly not the best time. People show up to auctions with crowds and end up making rash decisions and paying too much for properties.”

Wakelin Property Advisory director Jarrod McCabe said Australians were willing to pay more for property during 2021 because lockdowns had shifted their priorities, and they couldn’t spend money on holidays or other discretionary purchases.

Home buyers typically lived in their homes for 10 to 15 years, he said, and over longer periods a year’s worth of capital growth didn’t make much of a difference.

“You’ll see those ups and downs, but you’ll be fine if you get to the end of that 10- to 15-year period. If you bought a property at the end of 2021 in Melbourne, and you only held it to the end of next year you’re not going to have done as well,” he said.

“That’s part of the problem there, you haven’t held the property for long enough. If you’re looking at it on that national level you’re still in front. You’re still 7 per cent up on where you were at the time.”

McCabe said that it was more likely better properties would be listed during a boom, and it wasn’t always possible to wait to buy a dream home.

“We have that conversation with a lot of our clients,” he said. “You can’t determine when the right property is going to come up for sale. If it’s the right property, you can’t decide to buy it in 2022 if it came up in 2021.”