Does overpaying in this market bother you?

In this ultra hot market buyers would likely have to pay a premium (at least 10% more than you would have three months ago) to buy a property. It may be argued that property prices would keep going up and therefore no biggie at all to pay more, particularly on the assumption that the market is going to “catch up” anyway. Interested in your thoughts.

 

Not really. I've never bought during a boom before.

 

Doesn't bother me if my initial goal was to just accumulate never to sell and keep it forever!
Same as buying 21 years ago some properties, same as buying 32 years ago first PPOR.
Depends on your timeframe and what you wish to achieve, wouldn't you agree?

 

To NOT 'over pay', it suggests that you are able to time the market perfectly every time just before it takes off. Even buying in flat markets and holding for years before growth, has a cost factor. So you are still 'overpaying' but in a different way. Opportunity cost. Which can also be costly when you think of all those folks who bought in Perth and had no growth for many years plus holding costs, as an example.

So the reality is that we ALL overpay for most purchases, unless timing is perfect. And no one has a crystal ball for perfect timing every time.

So 'overpaying' in its self, is not an issue.

The determining question is, are you buying enough value at the current price the market is asking for an acceptable amount of risk?

Scenario 1. Prices have moved 30% away from starting point. Good house, great OO area. No add value ability

Scenario 2. Prices have moved 10% away from starting point. Good house, great OO area, some limited scope to add value.

Scenario 3. Prices have moved 15-20% from starting point, good house, great OO area, good scope to add value.

In all these scenarios you would be 'overpaying', in a dollar sense. But if you see enough value in any of them then the purchase price may be worthwhile the investment.

I have found that if you focus on VALUE, price will often take care of it self.


Sorry for the long winded reply.

 

You are not paying a "10% premium". You are paying fair market value / today's price.

What you are asking is that 'could buyers get a 10% discounted deal in this super hot market' - then the answer is NO - not in this market.

 

From what I'm seeing, no bloody chance. So many markets seem to be hotter than Cindy Crawford back in her heyday.

 

Its tougher for fhbs, but by the next cycle, what will you be thinking?

what do people think about 2017 prices now?

Look at the reverse situation. would you have thought you were overpaying if you bought in 2018 or 2020 when the market was falling? What did you think of the market back then? Why didnt people buy?

if you bought in sydney in 2003, what would you think now?

long term, IF it goes up, it wont matter that much.

 

It’s definitely not “overpaying”. It’s what the market costs right now.

Put it another way, if the train keeps running (it will) and grows another 10% in 6 months then if you bought right now under this logic you just saved 10%....and in 6 months you overpaid by 10%. And so on and so on

It’s exactly as @Sackie put it. What the question I think is asking can you time the market and the huge assumption here is that right now the market is overpriced..The reality is we could right now be at the new bottom and this could be the time to steal a bargain.

 

You might find you've paid a premium when the bank valuation comes through and you can't settle

If you're assumption is that the market will always catch up so it doesn't matter then dive right in, plenty are.
If you take a back step and ask yourself wheter the transaction is actually worth it, you might start to consider alternatives.

 

I have never heard of a metro resi property (more than 70 sqm built area) in a capital city (or major regionals) being bought in an open market with multiple parties putting offers and the bank deciding not to fund it because in their opinion, the value is less than the buyer paid for it. I am sure there might be an odd one somewhere (and especially if there is a related party transaction) but by and large, banks understand the market price and proceed with it. If it was otherwise, we would see these in headlines in the press everywhere with people not settling.

Very very remote possibility but the OP asked a general question.

 

Fantastic perspective. In other words its not about current price vs. market indicators, but risk that the property will not deliver on the investment objective.

Reading between the lines of what many are talking about at the moment, it seems there is a strong perception of irrationality in buyer behaviour, which increases risk and uncertainty that prices will not be lower in a few months time.

To put Sackie's approach on it, the question shouldnt be about the price paid but on the assumptions made at time of purchase. Some of these could be:

• Will rents remain stable/rise or fall below the investment justification threshold?
• Will it provide capital return within the intended timeline (a very subjective question, and likely what i assume most are actually thinking about)
• Will it out-perform other investments (different states/asset classes) that i could otherwise be making right now?

 

Although i agree in principal.

Are you suggesting their is no intrinsic value?

 

If market prices are always higher than intrinsic value (however you calc it), whats the point of it?

 

Fair point.

 

This was very helpful. The missus and I have been eyeing up a place in Calamvale/Parkinson for a while and I think this is a great guide for young 'learners' like us Thanks

 

How long is "a while"?

 

Ahahaha should have rephrased that, only past few weeks sorry.

 

Ok cool. I was thinking it would have to be a pretty bad property to be on the market for a few months.

 

When apartments within middle ring hit 10x debt to income ratio, you might expect a ceiling + correction...

 

The question in this thread is a good one. If people felt more secure with their situation, will more supply come on the market and stabilise it?