The best time to buy a house is now. Yes, NOW is the time to buy your home. The disadvantages of waiting even a few months far outweigh the disadvantages that may come with buying a property at "the wrong time".
Booming Economy
There are times in the South African property market when the economy is brisk and everyone feels confident about the future. As a result, they spend more money and make more debt. People who are confident about their future finances tend to eat out more, buy new cars, and buy new houses.
Houses are in high demand, and at the same time, there is a shortage of properties for sale, or the number of sellers stays constant, but is much less than the number of buyers. So, house prices rise. Everyone complains about houses becoming "unaffordable", but prices keep rising, because people keep buying. If you want that nice looking house, or even an ugly one, you have to pay the asking price, or someone else will come and snatch it up from under your nose.
Interest rates are usually quite low in times like these, because the Reserve Bank lowered interest rates to try and heat up the economy a little. What the Reserve Bank doesn't seem to ever learn, though, is that lowering interest rates has a delayed reaction. The effects of a lower interest rate are not immediately visible. So, the next month, they drop the interest rate half a percent more, and the next month again. But this is an over reaction, and in turn, the economy over reacts as well, and people start spending too much!
Depressed Economy
So, the Reserve Bank starts trying to cool the economy off a bit, to get inflation under control. The interest rate is increased a little. But the economy has a delayed reaction to higher interest rates as well, so they increase interest rates again the following month, and the month after that too.
So, the economy over-reacts again, and slows down, usually too much. Companies may lay off employees and consumers become very careful about spending their money, because things suddenly cost more, and lending money is expensive. They may even start saving some money for a rainy day, but South Africans are notoriously bad savers, so this is not very likely. As a result, the economy decelerates even further. If it slows down enough, we have a recession on our hands, and that is a bad thing for most people.
During such a "slow economy" time, fewer people are buying homes, and those that are looking to buy, can afford less than they did when interest rates were low. Unfortunately for some homeowners, they find themselves in a situation where they must sell their property. Families grow beyond the capacity of their homes, employees get relocated, and some homeowners may even find themselves unable to make their mortgage bond repayments. This may be a result of a layoff in the family, or just the effect of the high interest rates.
Another challenge is that interest rates are generally higher during a depressed market and income may not be keeping up, because companies pay less overtime, and bonuses and commissions are down. With higher interest rates and lower earnings, fewer people can qualify for a home purchase than in more prosperous times. Or they qualify for smaller mortgages, which means that they have to pay less for the same house!
Buyers are few and far between, and for sellers who are pressed for time, this may mean that they have to accept a low price for their home. When the supply of available houses is greater than the demand for houses from buyers, property price appreciation may slow down and prices may even fall. Property prices don't often decrease, but it does happen, and it can happen to you.
If you were lucky enough to purchase a home during a slow period, or "buyer's market", your property will be reasonably certain of an increase in value in future. History shows this. The economy will begin to show strength again eventually, and people will start spending more and buy more houses. At times, real estate values may even surge drastically.
Out-Guessing The Market
The problem with trying to out-guess the market is that it is not that easy to know when the market is at a turning point. One problem with attempting to time your home purchase to the business cycle is that no one can accurately predict the future.
"Timing the market", would generally work best for first-time buyers, but only in a falling market. In a rising property market, which is usually the case, the longer your money is sitting in a savings account, the further you fall behind. Remember, when prices are rising fast, interest rates are low, so your cash cannot grow in pace with the property prices. Even when house prices are rising slowly, they usually keep up with inflation; so even then, your money may be losing its value sitting in a savings account. It is best to invest in property as soon as you can. Only in very rare situations is it wise to wait for prices to fall.
People who already own a home usually need to sell it in order to buy their next one. If a "move-up" buyer wants to buy a home during a depressed market, it means they usually have to sell their current home during the same slow market. If a seller wants to sell his home to take advantage of a "hot" market when prices are fairly high, they generally have to buy their next home during that same hot market as well. So, for people who already own a home, they just have to make sure they get the best possible price for their home. Their price advantage and disadvantage tend to equal out.
The Problem With Waiting
Finally, as time passes and the Reserve Bank does their interest rate thing again, the business cycle will change. South Africa has not seen falling property values for more than 10 years. And when prices do turn, or even flatten off, it only last a little while, according the historic statistics.
Do you really want to wait 10 years to buy a home? How much better would your position be then? Do you think homes will cost less in 2, 5 or 10 years' time? You could be missing out on substantial gains, and end up paying much more for your home when you eventually decide to buy!
Speak to people who have been around for a while. I have never met anyone who had any regrets about buying a home. I have, however, heard many stories of regret about selling a property investment and investing that money somewhere else.
Buy NOW
Don't fool yourself. The time to buy is NOW!
