Time in the Market vs Timing the Market: Why Picking the Bottom Rarely Works

When prices soften, everyone becomes an economist. Buyers step back, wait for the bottom, and plan to move once it is clear the worst has passed. It sounds disciplined. Buy low, sell high.

The difficulty is that picking the bottom requires you to correctly forecast interest rates, inflation, employment and consumer sentiment. The Reserve Bank and the major bank economists do this for a living and are regularly wrong.

This article is about the long-run argument. If you want the current numbers on where the market actually sits, that is a separate piece.

You only recognise the bottom afterwards

A market bottom is not announced. You identify it once prices have already turned, which is also the moment every other buyer who was waiting arrives at the same conclusion.

So the plan "I will buy at the bottom" tends to resolve as "I will buy slightly after the bottom, competing with everyone else who was waiting". That is a materially worse position than it sounded when you made the plan.

What waiting costs while you do it

• Your borrowing capacity moves. Rate changes alter what you can afford, sometimes more than price changes do. A cheaper property you can no longer borrow against is not a saving.
• You are out of a compounding asset. Property returns are built over decades. A few percent in one year is small against that, in both directions.
• Life does not pause. A house is somewhere you live. Delaying by three years to save 4% is a real trade, and it is not obviously a good one.

What the long-run data shows

CoreLogic data covering the thirty years to 2022 put the increase in Australian dwelling values at 382%, an average compounding growth rate of 5.4% a year.^[1]

That figure is now several years old and it is a national average, so treat it as a description of a long cycle rather than a forecast. What it captures is worth sitting with. That thirty years contained the early 1990s recession with a cash rate of 17.5%, the Global Financial Crisis, successive APRA lending crackdowns, a Royal Commission and a pandemic.

None of this guarantees anything about the next decade, and anyone presenting it as a guarantee is selling something. What it does show is that short-term volatility is normal and has repeatedly looked like the end of the world at the time.

Somebody is buying while everyone else waits

The buyers who step back in a correction are, overwhelmingly, the buyers who need to borrow. The ones who do not need to borrow tend to carry on.

PEXA settles the paperwork on most property transfers in the eastern states, so its data is a count rather than a survey. Across New South Wales, Victoria and Queensland in FY24 there were 140,572 purchases made entirely in cash, with no mortgage at all. That is 26.5% of all residential purchases, and $138.0 billion, or 28% of everything spent on residential property in those three states.^[2]

Roughly one purchase in four, with no lender involved and therefore no borrowing capacity to be squeezed by the cash rate. PEXA has previously pointed to the size of this group as part of why the market held up as well as it did through the rate rises of 2023.^[3]

Two things follow, and it is worth separating them.

The first is what this cohort is not doing. They are not sitting out the cycle waiting for a signal. They are transacting through it, which is what you would expect from buyers whose purchase is governed by what they want to own rather than by what a bank will lend them this quarter.

The second is what that does to you if you are waiting. In a softer market the competition thins out, but it does not disappear, and who remains changes. The buyer still standing at the top of this market is more likely to be paying cash, able to move quickly, and unbothered by the rate that is keeping you on the sidelines. Waiting for the bottom does not mean waiting for an empty room.

Be careful about over-reading this. PEXA also notes the cash share of total spending has come down from the year before, as mortgage buyers returned in greater numbers.^[2] The cohort is large and durable, not surging, and the point here is who is active rather than that anyone is being outbid.

Why the floor tends to hold in Australia

Two structural factors sit underneath the market and neither resolves quickly.

The first is supply. Australia does not build enough homes, and construction has been slowed by labour shortages, material costs and planning bottlenecks. The second is population growth, driven substantially by overseas migration.

Neither of those is a reason to buy at any price. They are the reason that dips in Australian housing have historically been shallower and shorter than buyers expect while they are happening.

What to focus on instead

Rather than obsessing over when, spend the effort on what.

An A-grade property in a tightly held location protects your capital far better through a soft patch than a C-grade property bought at a slightly better moment. Quality and scarcity do more work than timing does, and they are things you can actually assess.

If you are finance-ready, know your area, and find something that genuinely suits you for the next ten years, the timing question is smaller than it feels.