Buying property when others are being deterred by high interest rates could prove to be an investor masterstroke.
Interest rates have an interesting effect on the psyche of real estate buyers.
When interest rates are low, it naturally stimulates increased buyer interest.
It also creates an environment where that increased volume of buyers creates higher demand for properties that results in price increases.
The reverse applies when interest rates rise, where a percentage of buyers are simply knocked out of the marketplace because they can’t afford the loan repayments at the higher interest rate levels.
Psychology also plays a part, where people get caught up in the fact interest rates are perhaps double what they were a couple of years earlier and feel foolish taking out taking out loans at the higher interest rate levels.
Yet the reality is that the best time to buy is when interest rates are nearing their peak. This is when you have the least amount of competition for properties and where you can bargain harder on the purchase price, when many owners are actually selling because they can’t maintain repayments on their loans.
For anyone taking out a loan at or near the peak, you know you can take out a loan you can afford and have the comfort of knowing that interest rates will likely start dropping perhaps a year or so later.
The reality is you can save a substantial amount of money by buying well as opposed to being focused on the higher interest rates for perhaps a year or 18 months.
The year ahead deep into 2025 will provide great buying opportunities.
This is underscored by figures just released showing that more than 20,000 properties were sold in Queensland over the past 12 months by those unable to keep up with loan repayments.
Not only are we seeing the effects of higher interest rates on home owners, but most of those 20,000 people will have been forced back into the rental market.
Others have downsized into lower price brackets with lower home loans.
Warren Buffet, the world’s most famous and successful investor, has a simple rule and that is 'be fearful when others are greedy, and be greedy when others are fearful'.
For the past four years of the real estate boom, over confidence, a disregard for fundamentals and yes, a higher demand than supply, has attracted so many people into the real estate market with the ambition of making quick money.
High interest rates have created a fearful environment that has removed many buyers from the market, and will continue to do so over the next year.
This opens up outstanding opportunities for investors.
The supply and demand equation continues to favour price growth for years to come, as there is no quick fix to the supply problem in Australia.
The next year presents amazing opportunities for those who can see the advantage of buying when interest rates are higher in the knowledge they will be on the decline in a year or so.
Barbara Hutson