How to avoid the winter home hunting blues: Step two – make good decisions

Yesterday I talked about the importance of staying patient in the cooler winter market. The consequences of a bad decision are much worse now, and time is needed to make the best possible decision.

In the late 1990s and early 2000s the consequences of decisions were not quite so obvious due to runaway capital growth pretty much right across the board. Even a bad decision was a good decision because almost anyone who bought was better off than those who didn’t.

Over the past seven years or so (traditionally one property cycle), since around 2006-07 the game has changed. When it comes to home buying, there is now a significant gap between those who have made good decisions and those who have not.

Good decisions: We can give you specific examples of clients who have bought since 2007 and who since that time have seen 50% increases in buying and selling. One home that was bought for $1 million in 2007, for instance, sold for $1.5 million in 2012. Not that we have encouraged such quick turnaround – but sometimes circumstances change.

Poor decisions: We can also point to sales that have resulted in up to 20% losses since 2007. We have seen some substantial losses in the Golden Mile Brighton, as well as a period home in Elsternwick with a big auction and even homes in Boroondara. If you bought a $2 million home in 2007 and sold it for $1.7 million five years later, that is a substantial loss.

Highlighting the good decision vs. bad decision numbers.

Back in 2007, the $1 million buyer and the $2 million buyer were $1 million apart. Now in 2012 they are only $200,000 apart. Meanwhile, the buyer who made the good decision has had to pay only half the mortgage repayments of the poor decision buyer. Sure, this is an extreme case, but it has happened.

The winter of 2012 is a time to keep making good home buying decisions.

Mal James is principal of James Buyer Advocates, which advocates on behalf of buyers of property over $1 million. Mal writes weekly auction reports, advice and in-depth market analysis on James' website.