Investors are disregarding advice to go against the crowd.
One of the foundation rules of investing is to go against the crowd – buy when prices are low and sell when prices are high.
The problem is, this philosophy goes against our inherent desire to follow the pack.
Step outside the pack
When property markets are hot, as they are in many parts of Australia at present, there are good reasons to step outside the crowd.
Angus Raine, CEO of the Raine & Horne Property Group explains, "In a heated market it can be tempting to buy the first property that becomes available in your price range, although there is a plethora of online research resources you can tap into before you arrive at an open for inspection.
He adds, "There's always a fear of being left behind, and none of us want to be among those who look back and say if only I'd bought back then".
Upfront costs call for a long term view
But as Ron Hodge, Managing Director, InvestSMART.com.au notes, "The upfront costs of buying a property typically make it essential to regard bricks and mortar as a long term proposition. A big gain in a single year may not be enough to merit jumping on the bandwagon. It's a knee jerk reaction that has seen investors get burnt in the past."
A classic example of this could be happening right now.
Look at the big picture
As a guide, the latest RP Data-Rismark January Hedonic Home Value Index Results show Sydney home prices rose by an average of 13.4% to the year ended 31 January 2014. Yet according to Rismark's CEO, Ben Skilbeck, "Sydney's annualised 10 -year growth to 31 January 2013 is a very modest 3.0% - less than half the rate of national household disposable income growth over the period."
As Angus Raine notes, "The best approach is to look for a property and location that suits your personal goals over time. The beauty of taking this long term approach is that you can afford to cut out the day to day 'market noise' and focus on your own needs."