Surely Alex, most investors would not be spooked by a drop of 12%?
Wouldn't most investors factor in say 2 percentage points rise, and the need to hold the property for a coupla extra years if required to get back to parity?
Or am I dreamin?
Do people really sell up over a hiccup of 12%?
seems like a waste of entry and exit costs to me.
I wouldn't be spooked. If markets dropped by 12% I would be out there buying. I keep a pretty low LVR, cash, and ungeared shares for risk management purposes.
But reading about the US and Australian foreclosures, recurring themes are:
1) they bought thinking property would always go up, so they were willing to pay any price, and
2) foreclosure comes because they can't make the payments, not because the value goes down. This is often due to illness, stupid financial behaviour, divorce, death, unemployment, loss of one income, etc.
People at the top actually buy HIGHER than even the implied median value, because the market is so crazy. They're already totally at the spending red line, but figure rising prices will allow them to refinance. When it doesn't, and they don't change their financial behaviour (or lose one income, etc) they can't make their payments.
Most people are just a few paydays away from being broke. When these people buy properties, do we expect them to be any more financially intelligent than with their credit cards?
That's what separates the investors from the 'me too' idiots. That's why a bear market is good for us. Shake out the financially inept and weak, giving us more opportunities.
Alex