What would Warren Buffett do in the current property market?

Couple being handed keys to new house

Warren Buffett is one of the world’s richest people and most successful investors. According to Investopedia.com, his net worth is listed at $100 billion as of June 2022. Buffett once explained why he and his business partner, Charlie Munger, had built such an incredible investing record over many years.

“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful,” he said.

No one could blame property investors if they were feeling a little fearful right now, given all the negative headlines about rising mortgage loan interest rates and falling property prices.

But if Buffett were a property investor, he might suggest that now is the perfect time for investors to be greedy and plan their next purchase.

And there are four excellent reasons why.

1. Property prices grow strongly over the long-term

According to CoreLogic, Australia’s median property price fell 2.0% in the July quarter.

Chances are, prices have a bit more to fall.

But this is an orderly correction from a record-high level rather than a chaotic downturn.

If you go back in time, you can look at the current market with a proper perspective. Here’s how much median house prices have grown between 1973 and July 2022, according to this Macquarie University report and CoreLogic:

  • Sydney = from $27,400 to $1,346,193 (up 4,813%)
  • Melbourne = from $19,800 to $964,950 (up 4,773%)
  • Brisbane = from $17,500 to $884336 (up 4,953%)

That massive capital growth has occurred despite the regular property downturns, economic recessions and global crises that occurred along the way.

If history is any guide, property prices will grow strongly over the decades ahead, despite the short-term downturn that’s occurring now and the inevitable downturns that will arise in the future.

2. It’s a buyer’s market

Right now, we’re all a bit grumpy because there’s quite a bit of inflation around, and everything we’re buying is more expensive.

So you should rejoice that property prices have declined and will probably fall a little more.

This is your chance to buy a property at a discount, compared to earlier in the year when the market was at its peak.

Also, there’s less competition right now, which gives you more time to do due diligence on properties you like and increases your chances of making the winning bid.

3. It’s a landlord’s market

Back in April 2020, the national vacancy rate was 2.6%, according to SQM Research, meaning the rental market was evenly balanced between landlords and tenants. As of July 2022, the vacancy rate had fallen to an ultra-low 1.0%, making it a landlord’s market.

With very few vacant rental properties, it’s hard for tenants to find rental accommodation right now.

That’s great news for property investors because it’s easy to find and attract good tenants in this kind of landlord’s market.

4. Rents are going through the roof

What happens when tenants have to compete hard for accommodation? Rents rise.

Over the year to 12 August 2022, asking rents across Australia increased by an astonishing 13.6%, according to SQM Research.

By the way, if fearful property investors were to sell up, that would only further reduce the stock of rental accommodation, putting even more downward pressure on vacancy rates and upward pressure on rents.

Want to buy an investment property? Download our guide to property investing here.

NMC Finance is an experienced home loan mortgage broker and can help you with home loan finance. Contact Nathan Coad on 0498 766 639 or nathan.coad@nmcfinance.com.au to find out more.

* This blog is intended for general informational purposes only. For personalised advice tailored to your unique financial situation, please contact NMC Finance.

FREE Guide to Building a Property Portfolio

Download our FREE GUIDE and learn everything you need to know from How to Start, Find, Afford, Grow and the Risks Involved in Building a Property Portfolio.