Average Investors Time Property Markets Poorly

August 28th, 2013

Average investors are notorious for timing property market cycles poorly, according to finance and property writer Pete Wargent, who stresses the importance of long-term outcomes. People should see property as a 25-year investment and realise that prices will increase in locations with a booming population and little land available for sale.

Although risk diversification across different asset classes is important, Wargent says that investing in Sydney property could help investors reap significant gains in the long term. Other mainstream forecasters also believe that the property market is a good long-term bet and that house prices will increase significantly in the following years.

Wargent predicted that Australia’s property markets would rebound in May 2012 instead of crashing. However, David Collyer of Prosper said in his Don’t Buy Now! campaign in February 2012 that people should not invest in the property market. He believed that prices will decrease by 15-20% in December 2012 due to low interest rates and the discredited First Home Buyers Grant. Collyer added that a fall in prices would erase home equity while mortgage repayments are still expected to be paid in full.

The property market did not crash, however, and prices have increased by 7.5-10%. Futures markets see interest rates remain at or below 2.50% until 2015. With auction clearance rates of 80%, Wargent expects Sydney house prices to increase even further. Therefore, the problem with the campaign is that people assume they can predict market movements with absolute accuracy.

Source: http://www.propertyobserver.com.au/economy/average-investors-are-notoriously-poor-at-timing-property-market-cycles-pete-wargent/2013080863794#.UgRzAIfR6Wk.gmail