"You can only look at price with certainty if you look at it as a mechanism that allows a transaction and almost nothing else."
How to have confidence in your property buying decisions, even though the market is always on the precipice of uncertainty
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We might like to think that life is certain, but it is not. Neither is the market. History shows us that the market is on the precipice of uncertainty pretty much all the time. That’s because the market is actually a composite of people’s opinions. And opinions can change on a five-cent piece.
Buyers and sellers act out of need, out of want and out of instinct. Their many actions culminate in exchanges of ownership. These exchanges are what society focuses on and records in an attempt to give a sense of certainty to the market.
The opinion-recording mechanism that society uses to try to create an element of certainty is price. Price is a very imperfect unit of measurement when it comes to describing the emotional certainty of a transaction. But it’s the most practical and the only uniformly acceptable measurement we have.
In Melbourne in 2012 there is currently a malaise of uncertainty on price that is besetting many an inexperienced buyer and seller out there. This uncertainty is creating a wide range of emotions for many buyers, even if they don’t realise it.
How do you as a buyer live, deal and feel comfortable with your emotions in a world that is currently headlining uncertainty over certainty right now? How do you as a buyer function within the Melbourne property market without going a little crazy when you use price as a measurement to give you certainty?
To get some comfort when you are uncertain there are two magic pills. They are very different, and either can work for surviving this current market.
One magic pill is ignorance. The other is being properly informed.
Ignorance can work well when buying homes in a booming market like that of the early 2000s. But in the current uncertain market, using ignorance is a bit of a crapshoot. While sometimes it can work, we’ve also seen it hurt a lot more people than it has helped – particularly in the outer areas, in overpriced apartments and in poorly located, poorly laid-out or over-priced inner-Melbourne family homes.
The other magic pill for managing your emotions in the property market is information. Being properly informed can allow you to traverse the current market of uncertainty in a manner involving less pain, both now and in the future.
So back to price, which is where all the pain is right now – how do we lessen the pain of price uncertainty? How do you get comfort in your price selections right now?
Simple: you have to understand what price is and how it works.
In our current market you can only look at price with certainty if you look at it as a mechanism that allows a transaction and almost nothing else.
You need to understand that price characteristics change in a falling market. And those changes bring in a whole new genre of commentary called risk analysis. Risk analysis is about examining your chances of achieving your goals. Risk management is about minimising the possibility of missing out on what you want.
At the moment, if you are feeling uncomfortable about price it is probably because you are uncomfortable with what price actually is and does, and with the associated risks.
But how can you get comfortable with price in this market? Understand what it is and what it isn’t.