Real estate myths buyers and sellers need to ignore

The current real estate market is challenging enough without putting faith in debunked myths. This is what you need to ignore when buying or selling a home.

Myths in real estate have a way of gathering momentum.

Uninitiated buyers seeking advice can often fall foul of misguided information from well-meaning friends, family members or even social media posts touting tips that simply aren’t on the money.

From theories about timing the market and fears of missing out, to falsehoods about how much you can borrow, experts say purchasers should focus on their own story and not get caught up in the analysis paralysis of the big picture.

Some common financial folklore and real estate misconceptions are easily busted when you look below the surface.

MYTH 1: YOU CAN ‘TIME’ THE MARKET

Richard Whitten, money expert at Finder, said it might sound like a cliche but buyers need to think about their time in the market, not timing the market.

“You can’t time it. It should be all about what’s right for you based on your financial situation, what you can afford and what your goals are. Because whenever you enter the market, you’re there for the long haul – property isn’t a short term thing. Markets go through cycles, but it’s going to average out eventually,” he said.

Chief economist at Ray White Australia, Nerida Conisbee, agreed timing needs to be personal. “The best moment to buy is as soon as you possibly can. Especially as a young person, because it’s your time in the market that makes a difference to how well you do in property.”

Buy as soon as you can – market cycles average out eventually.

MYTH 2: PRICES WILL CRASH

An impending property bubble has been a hot topic for decades.

“Every down cycle people claim there’s going to be a 20 to 30 per cent price crash, and it’s never happened. Although we see prices rise and fall through cycles, ultimately it always rises a lot more than it subsequently falls,” Ms Conisbee explained, adding that immigration and supply play a part in the way pricing moves.

“Australia simply hasn’t built enough homes and that’s not likely to change soon,” she said.

Mr Whitten said there’s always someone predicting a crash. “Sure, past data is never necessarily indicative of future performance, but if you look at the Australian property market over the past 10 to 20 years, while there are obviously dips, the line just goes up,” he said.

“Property is so fundamental to the economy. I’m not saying a crash can’t happen, but it’s very unlikely. Plan for the market you’re in, rather than waiting for a hypothetical price adjustment that may not come, or the decrease may not be anywhere near enough to make it worth the wait.

MORE: Aussie home prices hit record high - PropTrack

MYTH 3: LOST BORROWING POWER

Since interest rates began an upward trajectory earlier this year, many have seen their capacity to borrow drop considerably.

“This is one myth everyone is making assumptions about, not only first-home buyers,” Mr Whitten said. “Check your borrowing power. Go to a few lenders, use their online calculators or apply for pre approval to give yourself a rough estimate. It’s true that with all the rate rises you have to re-evaluate what you can afford, as well as what the bank will lend you, but it doesn’t mean you won’t get a loan approved. In fact with so many lenders in the market, you’d be surprised how competitive they’re being to get business.”

MYTH 4: RENTING IS CHEAPER THAN BUYING

Rising mortgage repayments might feel like a much heavier pill to swallow, but homeownership has a long-term goal. “It’s never a better time to rent, it’s always a better time to buy. Purchasing a home to live in is critical because it puts you in a vastly different situation at retirement than someone who continues to rent,” Ms Conisbee said.

“Even if it feels cheaper to rent than buy today, at least you’re paying off a mortgage and locking in the price of the property. What you don’t want long-term is to always be connected to rental market forces.”

MYTH 5: YOU NEED A 20 PER CENT DEPOSIT

Lenders have long required first-time buyers to fork out a 20 per cent deposit to get onto the property ladder, but Mr Whitten said there are several ways to sidestep the requirement.

“You absolutely can buy without a 20 per cent deposit; actually it’s probably becoming more common now than it used to be. That’s supported by the government at the Federal level with home guarantee schemes, so you can actually get in with a 5 per cent deposit and avoid paying lender’s mortgage insurance costs,” he said.

“The guarantor option is quite popular as well now, which is getting financial help from your parents who have a property. The infamous back of mum and dad can’t be underestimated.”