If real estate is on your mind, then every day we’re getting messages and storing information around the current state of the market. Between all the different economic commentary, media coverage and opinions from family and friends, everyone seems to have an opinion on whether house prices are going to boom or bust.
But how do you know what's actually happening in your local area?
It's important to remember that every market is different, so we always recommend that doing some research is best. If you wanted to understand market activity in your area, we’ll shed some light by discussing some of the market signals that you can keep an eye on.
Below are the statistics and trends to watch to help you not only understand what your local market is doing, but also assist in having more constructive and critical conversations with agents if you choose to discuss your options in more detail.
1. Is your local market gentrifying?
Gentrification is a good indicator of a ‘hotter’ real estate market. Want to know how your area is faring? You need to take a little look at your neighbours.
Ask yourself, “are the people in my area changing?” Demographics aren’t just important to sellers, but investors and upsizers, too. Investors want to buy into areas that are on the rise, families want to get more for their dollar, and sellers want to strike while the iron is hot.
There’s a tonne of stats that point to gentrification and these are freely available via the Australian Bureau of Statistics. Generally, if you live in an area that looks like it’s changing through a rise in young professionals and families setting up house, then you’ve probably got a gentrifying suburb on your hands.
If you wanted to dig in more, you should look for an increase in couples with children; an increase in residents who lived at a different address five years ago; and an increase in total household income. If you’re seeing positive changes across these statistics, then it shows that your area is becoming more desirable for buyers and renters. This is especially true if you live in an area that has historically been considered unappealing.
2. What are property prices doing?
While it’s important to look at how property prices are currently performing, it’s also a good idea to look at how they’re expected to change in the future.
If property price growth starts to plateau and market outlook predictions are not positive, it may be worth trying to avoid the decline and sell your property while prices are still stable. On the other hand, if property prices have been experiencing strong growth and consumer sentiment is high, it is likely that your property may appreciate in value if you wait.
Keeping track of how property prices are performing in your local area will allow you to stay informed and understand the local market conditions of supply and demand.
Property prices are dictated by supply and demand. When demand is high but supply is low, competition between buyers often drives prices up.
Why is this important? Property prices are dictated by supply and demand. When demand is high but supply is low, competition between buyers often drives prices up. When there are too many properties on the market however, sellers may need to lower their prices due to less demand.
Knowing the market conditions of your local area, how property prices are currently performing and predictions for the future can give you a well rounded view of how property prices are actually doing.
3. Are you monitoring days on market?
A good indicator of whether you’re in a buyers market or a sellers market is days on market. Markets that are in high demand will tend to show a decrease in the average time it takes to sell a property. The greater the days on market, the more likely vendor discounting is.
In saying this, it’s really important to know what the average days on market is in your area. In rural areas and very expensive suburbs, days on market can tend to normally be higher because there are fewer buyers on the market. So find the average days on market over the past quarter or six months, for example, and compare those with the latest days on market figures available.
4. Is the landscape of your suburb changing?
Like demographic change, another clue that your market is in demand is a surge in new developments, infrastructure and amenities. State and local governments will invest in areas where there is demand by way of population, or a need to greatly influence the area’s ability to function and grow.
Similarly, developers will seek out areas where they’re confident in getting a good return on investment. Larger scale developments can take 1-2 years to complete, and sometimes longer given all the bureaucratic hurdles. A developer needs to have solid confidence in the area to be waiting all that time.
5. What is happening in surrounding suburbs?
If you’re leaning more towards waiting it out, a good way to understand how your suburb might behave in future, is to look at the suburbs next door. If housing affordability and slow wage growth impacts a buyer’s ability to purchase in a certain area, they will tend to look for more affordable ‘next-door’ suburbs, causing a ripple effect on neighbouring postcodes.
If you’re leaning more towards waiting it out, a good way to understand how your suburb might behave in future, is to look at the suburbs next door.
To understand whether your suburb is in a potential ‘ripple’ area, it probably has a similar feel and similar amenities to more desirable suburbs next door. It might be a little further to train stations, or schools, but it’s all still very close. The more desirable neighbouring suburb probably has a median value up to 10% higher than your suburb. So if you’re looking to hold, watch median values in your area over six months to a year to see if there is an upward trend.
6. What is consumer sentiment like?
We spoke about media commentary earlier, and this can have an impact on how we all feel and think about the market. But as we also mentioned, every market is completely different, so while one area might be booming, another might really be in the throes of a downturn.
To understand consumer sentiment, you need to look at listings volumes and sales volume. If people aren’t listing, they’re probably concerned they’re not going to get a great price or that there aren’t many buyers out there. If sales volume is down compared to ‘normal’, then that’s an indication that people aren’t buying.
7. What are the latest auction clearance rates?
Multiple factors can affect auction clearance rates, including prevailing interest rates, time of year, public holidays, sudden economic changes (we’re looking at you Covid-19), and even sporting events.
Clearance rates are generally a really key property market indicator, expressed as a percentage of the number of properties sold at auction over a defined timeframe. Clearance rates can act like a temperature gauge to help you understand if you’re in a buyers or sellers market. And generally rates above 70% suggest you are in a sellers market. In contrast, if a market is regularly recording clearance rates below 70%, it suggests that sentiment is quite low.
Clearance rates can act like a temperature gauge to help you understand if you’re in a buyers or sellers market.
It is important to keep the volume of stock going to auction at the forefront of your mind, though. If stock levels going to auction are low, then clearance rates are not a trusted indicator of how the market is currently performing.
8. Is there a high level of vendor discounting?
Setting the right price in any market is a hard task, especially if a market is changing rapidly. It is a delicate balance that can be hard to master. Firstly you need to be realistic about the value of your home amid current market conditions. Secondly you need to choose the right agent who won’t inflate your property’s appraised value just to get a listing.
Vendor discounting occurs when a seller accepts an offer lower than the first advertised price. Vendor discounting is more common in slower markets, particularly if there aren’t many buyers circling, as vendors get nervous that they won’t get an offer any higher.
9. Is a period of economic instability on the horizon?
If you’re considering selling, then we have no doubt that you’re watching and reading the latest real estate news to understand what’s happening nationally, at a state level, and in your own region. Keep up with what analysts are predicting for the future. If the economy is on unsteady ground and analysts are predicting that the market will be negatively affected, then it may be a good idea to sell before heavy price corrections take place.
One of the most respected Australian industry analysts and researchers is Tim Lawless from CoreLogic. He and his team release new figures and analysis on a regular basis, and you can access this analysis here.
10. How scarce is your property type in your area?
When it comes to understanding the value of your property, the concept of scarcity in the current market can give you a better understanding of whether it is likely to sell and whether it is likely to be in high demand. Generally, the scarcer the property, the more expensive it is, but what plays into this is not only property type, but location as well.
A good example of this would be an inner-city suburb where there is a very high concentration of apartments, and a short supply of houses; if you own a house in an area like this, particularly a character home, it is likely to be high in value and high in demand. Similarly, in an area close to the city where apartment buildings dominate the skyline, a three or four bedroom apartment may also be considered a scarce property as there is a smaller quantity of them.
We hope the above information is helpful to you during your property journey. As always, we want to emphasise that every market is different, so it’s important to deep dive into what’s happening in your local area, irrespective of what is happening at a national level.
It never hurts to speak to reputable local agents either. They have their ear to the ground, deal with buyers and sellers daily, and will be able to tell you what market sentiment is currently like for properties like yours. Better still, having done your research, you will be able to have a more productive conversation, and will be able to evaluate what they’re saying, and ask the right questions with your newfound knowledge.
We wish you all the best.