Why Do We See “Analysis Paralysis” In A Softening Market?
One of the fascinating dynamics that we’re seeing in the market right now is an uptick in what we call “analysis paralysis.” Basically, people are so concerned about analysing the opportunities in the market that they’re missing opportunities and ending up with nothing.
It isn’t what you would expect with a softening market. You would expect that people would be taking the opportunity to snap up property. Instead, however, many are sitting on their hands, choosing to do nothing, or delaying decisions… until it’s too late.
Where the fear in the market is coming from.
There are three major fears for property buyers in Australia right now. These fears are fairly universal across all markets, and are, for the most part, a response to macroeconomic worries:
- Australians are worried about decreasing property values. There is a real concern among Australians that the bottom for the property market has yet to be reached, and if they buy now, then they’re going to have an asset that continues to depreciate, and they’ll end up with a mortgage greater than the value of the property (negative equity).
- Australians are expecting interest rates to continue to rise. Those that aren’t able to lock in fixed interest rates are concerned over whether the interest rates will reach a point that they’re no longer affordable.
- There is a fear of a recession in the market. A recession means job losses, lower incomes, and difficulty in finding new employment. Around 30 per cent of Australians live pay-check to pay-check, and the concern over job stability can put them off committing to long-term investments.
Why people should be less concerned about things than they are.
What is interesting is that all three of those concerns seem overblown when you look at the broader market conditions. It actually seems to be quite a good time to invest in property based on these statistics:
- Nationwide rental vacancy at record lows (circa 1%) – this means that rental increases are to continue throughout Australia due to the increase in competition, helping to offset mortgage repayment increases. Also, vacancy rates under 3% is an indicator of future price growth.
- Unemployment rate at record lows (3.5%) – unemployment is not going to be a concern for most people, even in the event of a job loss.
- Infrastructure spending at record highs ($120 billion announced for 2022-2023 budget) – this means, firstly, job creation, but additionally, it will help boost the property value of areas that have infrastructure investment.
- Net Overseas Migration Forecast to 180,000 in 2022-2023 & 213,000 in 2023-2024 – another reason to not shy away from property now is that there is going to be a wave of demand coming from overseas migrants and temporary residents in the short-medium term.
Of course, it’s easy to look at the data and tell yourself that you should not let market fears drive analysis paralysis. It’s quite another to be able to actually push past the fear.
So how do you reduce the effects of analysis paralysis?
The first – and most important – step in overcoming analysis paralysis is also quite simple: be informed. The more that you know, the more that you’re going to be able to see the market and opportunities for what they are, and act based on reality, rather than impressions.
A good example of this is in property market prices. People who are reconsidering property purchases based on short-term price fluctuations have a limited understanding of property as an asset class. As the old truism goes, with property you want to buy for time in the market, not the timing of the market. When you consider that you’ll be buying property for a 6+ year timeframe (at least, and likely longer), then the short-term volatility that we’re seeing now becomes rather irrelevant.
The next step is in making sure you’re educated and informed enough about the market to know that you’re doing the right thing in terms of what you’re buying and why. This means that you understand market value and what to look for in a property (buy property in an area with good infrastructure or projects underway, good employment diversification and amenities), and that you understand the value of committing to a 4-8 week intensive and laser-focused time frame for researching property.
Finally, it’s important to understand your limits and the value of expert advice. Surrounding yourself with subject matter experts, including a trusted property professional and/or advisor, can help give you the confidence that you’re taking the right steps towards ownership.
If you feel that you are suffering from analysis paralysis and could use some help, please don’t hesitate to reach out to the team at Hello Haus. We are here to help you Get Buyer Ready and make the most of the buyer’s market that is out there right now.