4 Signs a Market is Fading

January 30, 2017 Sam Saggers

A key part of successful property investing is timing the markets. Buying the right property, in the right location at the right time is one of the best ways to maximise your investing efforts.

But conversely, knowing the right time to sell is just as important.

If you are planning to sell, how can you spot the best time to put your investment property on the market?

By doing the same thing you did when you bought it; look for market signs that reflect the condition of an area.

Just as a growing market will give indicators that it’s growing, a market that is declining will offer clues that it’s starting to wane.

Here are 4 signs that a particular market might be headed towards a trough.

1. Real estate values fall

As a market starts to decline you’ll see a drop in value by as much as five to ten percent. This takes time, and since the market up to this point has been so strong, it takes a while before people start to notice it.

When the market’s starting to fade prices will still be high, but there will be room for them to slip. Normally, this process takes about a year.

If you were planning to sell off your investment property, doing it at this point would be a smart move.

Real estate values fall

2. Rental yields drop

One of the first signs that a market is headed towards a downward cycle is lower yields.

The phrase, “after contraction comes expansion and after expansion comes contraction” describes what happens to a marketplace when it starts to decline.

Figure out what the yields were say in the past six months to a year, then compare them to what is happening currently. If the overall trend is down you’re probably seeing the market shifting downward.

3. Vacancies increase

Several things can contribute to an increase in vacancies:

  • Over-supply
  • Fewer employment opportunities
  • Changes in an area’s economy

These factors drive rents downward because fewer tenants are vying for properties. To compete, investment property owners will need to provide incentives to draw tenants to their properties, such as lower rents.

Vacancies increase

4. Economy becomes stagnant

The economy of an area is the engine that drives its growth.

Look at what area businesses are doing. Is the government financing more infrastructure projects or have they been put on hold?

Businesses may hold off expanding until they feel more confident that it’s a good move, governments may scale back their infrastructure spending and individuals may refrain from buying a home until they’re more sure of their employment and/or financial situation, resulting in lower sales volumes.

Bottom line, to maximise your investment property returns and mitigate your risk you must understand what’s happening in the marketplace.

If you want more tips about your Property Investment strategy, book a FREE consultation with one of our expert Investment Coaches to discuss your situation and investing goals.

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