How To Spot A Rising Market Early? - October 2023
October 25, 2023 / Written by Rich Harvey
Regular readers will know that I believe in long-term property ownership. By retaining a home or investment over the course of two to three property cycles, you maximise capital gains. Long-term ownership also helps smooth out the kinks of short-term upswings and downswings.
That said, nobody likes to buy a home only to see its value fall soon after.
So, how do we as experts spot a location that is due for price growth, and pounce quickly so our clients receive the immediate benefits?
Here are some of the metrics I think are worth monitoring to ensure you’re making smart choices.
With property metrics, you want to track the trends rather than try to gauge decisions on single data points in isolation. Put another way, it doesn’t entirely matter what a suburb’s price looks like compared to other suburbs. What’s important is how today’s figures look compared to previous time periods.
This is particularly the case with listing numbers. Data on listings can be found for free at various website, but one of my favourites is SQM Research. At this site you can track monthly listing trends down to postcode level.
Listings reflect the supply side of the equation when analysing house prices. The fewer listings there are, the more there’s upward pressure on prices. Buyers have less choice and must then look to pay a premium to secure the home they desire.
Tracking the volume of sales occurring in a suburb is an excellent method for measuring the demand side of the equation. When you see the number of property sales increasing steadily quarter-on-quarter in an area, it shows interest from buyers is continuing to rise, and value increases are imminent. For example, if a suburb saw its sale numbers go from 30 to 40 to 60 to 70 each progressive quarter, it’s a sure sign you’re onto a hotspot. In fact, you will see the full effect of value increases once volumes start to plateau at that high quarterly figure, so staying ahead of the uptick if crucial for maximising gains.
Even if you’re not in the market to buy an investment property, vacancy rates are a lead indicator of price growth.
When vacancies track below a long-term average of between two and three per cent, it means there are more tenants looking for accommodation in a suburb than there are available rentals. This will lead to increasing rents which then feeds through to higher property values.
Also – there will be a cohort of tenants in a locality that has a tight vacancy rate who will choose to purchase a home instead. The uncertainty of rental availability means buying becomes more desirable. This uptick in buyer numbers bodes well for sellers seeking price growth.
Finally, tight vacancy rates are indicative of a suburb with a high owner-occupier to tenant ratio. This is always desirable when looking for capital gains. Owner-occupiers tend to hold their properties for longer, which keeps listing number tight. As such, buying into an area which has, say, a split of 80 per cent owner occupiers to 20 per cent renters will result in much stronger short-term and long-term capital growth potential.
Median price movements
I’ve included median price as it’s the most recognised measure of property value. We like to track the way the median price shifts in an area to see if a suburb has enjoyed a recent surge in value or is sitting latent with plenty of potential upside.
I also like to study quartile price movements. By looking at how both the upper and lower price sectors are shifting in both a suburb and city, you get a feel for whether prices are being “pushed up from the bottom” or “dragged up from the top”. This also helps with asset selection. For example, if there’s a lot of activity in the lower price quartile among first homebuyers, then median-priced family homes will see more demand in the future. As such, solid family-style assets at or slightly below the median price point have good prospects.
Population and demographics
This can start from a state level of course with Net Internal Migration (NIM) data generated by the ABS which identifies where Australians are moving to and where they’re coming from. This is mostly analysed at a state level but can also be compared among the capital cities. While NIM doesn’t give you suburb-level numbers, it’s useful in unearthing regions worthy of further investigation. Of course, you need to apply some qualitative experience to help identify the real opportunities. That’s where a buyers’ agent’s daily dealings in certain suburbs really come to the fore.
Then there’s the ABS Quickstats page which enables you to see demographic data collected during the most recent census. These can be viewed at suburb or statistical-region level.
Dominant age groups, home ownership rates, household makeup… even car ownership numbers are some of the traits recorded among a population group. For example, suburbs which have more upwardly-mobile families with high-income breadwinners have promising property market conditions. Cross reference that with high owner-occupier-to renter-ratios, and you could be onto a winner location.
Areas enjoying upgrades to infrastructure should be flagged as growth opportunities. Improved services and facilities are always drawcards. For example, more regular public transport options or increased parklands and recreation amenities are price boosters.
Then there are city-wide upgrades that can deliver benefits to certain suburbs. Take Sydney Metro for example. A location like St Marys will be brought dramatically “closer” to the CBD by this project because of the faster, more convenient commute. St Marys is also located near Penrith, a major growth region for Greater Sydney, and within proximity of the second Sydney Airport. All these infrastructure and service elements are sure to see home values continue strengthening in St Marys.
As you can see, selecting a growth location involves many moving parts. Keeping across the numbers and being able to correctly interpret them takes experience and skill—the traits talented buyers’ advocates have in spades. If you want to secure a property with maximum immediate upside potential, then contact Propertybuyer and let us lead you safely through the maze of real estate acquisition.
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