When it comes to property markets there are a lot of ‘truisms’ put out there. They’re sayings which are supposed to deliver a dose of entrenched wisdom as bite-size intelligence. It feels there’s no property quandary that can’t be solved by phrases such as, “Location! Location! Location”, or “It’s time in the market, not timing the market, that matters.”
And while many of these affirmations might help the average investor over a hard-decisions hump, the fact is property price performance– like all markets – can be distilled down to two fundamental measures. Demand and supply.
Entire economic careers have been built upon these two words. Reams of pages spent theorising about their intersection, and PHD’s published on what influences them.
They are key to understanding your markets – but what drives supply and demand and how do they help signpost market direction.
The fundamentals
Let’s put this in the most basic of real estate terms:
Supply refers to the amount of property available for sale or rent,
Demand refers to the number of buyers looking to purchase or rent.
Now, as supply increases, there’s more choice for buyers. If they miss out on one property at auction it’s no drama. Plenty more fish in the sea – they’ll bid on the next one. So, as supply increases – all else being equal – property prices fall.
On the flipside, as supply tightens – less choice will have buyers bidding hard for the limited available stock. As a result, expect prices to rise.
And so it goes with demand. A heap of people flood into an area and they require housing. Hey presto demand rises and so does price or rent. Similarly – a significant financial event might occur which dampens enthusiasm for property – perhaps interests rates rise substantially, for example. Suddenly less people want to buy, and sellers are stuck looking for buyers. Hence, less demand equals lower prices.
Measurement and drivers
How do we track supply and demand, and what is it that influences their growth or retraction?
Supply
When it comes to property within certain locations, listings are your basic measure of supply – whether they be sales or rentals. Listing numbers can be tracked via multiple sources.
One excellent source of listing figures is SQM Research, who provide a month-by-month listing chart for suburbs throughout Australia. Try this link for the free information on their website: https://sqmresearch.com.au/total-property-listings.php
Type in your suburb of interest and you’ll discover a comprehensive chart of listing figures.
A second source is listing portals themselves. This can require a bit more work is you’re not willing to pay the data providers, but it’s also a way to be more surgical with your research. If you go to your favourite listings portal and enter the specific parameters for your property of interest (by property type and/or price point) you can get an idea of how many homes are available. By tracking this information on a weekly basis using the same parameters, it becomes apparent how supply changes from week to week.
Another supply tracing measure is to look at construction and development approvals within certain local authorities. While this is high-level data, the month-by-month shift in approvals can provide a great regional overview. Click this link to the Australian Government website and try the interactive tool: https://www.housingdata.gov.au/visualisation/housing-market/building-approvals-local-government-area
Demand
Tracking demand can be a little more challenging. Essentially, you want to see if an area is experiencing an increase in buyers or renters looking for a place to live. One of the most effective and underutilised tools I know of is looking at population density. When you consider investing in a location it’s important to know there’s sufficient population within proximity of that asset. These are your renters or future buyers.
Think about it – you could own the most beautiful home in Australia, but if there are only 100 people located within 50 kilometres of your home, the potential buyer base is severely limited.
When I consider an investment location, I like to see a minimum of approximately 100,000 people within 20 kilometres of an asset.
Another demand gauge I like to use is the proportion of homeowners to renters. Homeowners are more discretionary in their location choices, and they are more likely than renters to reside for longer in their homes. As such, a high proportion of owners flags a place where property is tightly held, and demand is good. Further measures of demand are average Days On Market and Views Per Listing.
Days On Market is a measure which looks at the average number of days listings are on the market from when they are first advertised to when they are under contract. Real estate institutes across the nation often track and report this data.
Views Per Listing is a little less reliable, but still worth tracking. This is again a measure taken by the listing portals where they assess the average number of times each listing in a given suburb is viewed on their website. An increase in this number over a certain time period reflects rising interest from buyers.
Finally – a number which is delivered by CoreLogic on a regular basis is auction clearance rates. These can also be ‘big picture’ numbers gathered mostly for capital cities, but as an overall measure of demand, they do provide some useful indications.
Tracking supply and demand, interpreting how they influence value growth, and effectively applying the knowledge gained requires experience and skill. This is yet another area where qualified property investment advisors can be your guiding light. They can help select the right locations for your investment plan based on the foundational characteristics of supply and demand. Working with a professional property advisor who uses paid research and data services, will ensure you are deeply understanding the right data.
Always review any property location research and investment analysis data, with a professional, QPIA (PIPA Member) qualified & accredited ASPIRE Property Advisor Network Advisor. Never rely on glossy sales brochures or property marketing information, ensuring a property is right for your strategy. Property Investing is about BUYING a property that matches your goals and aligns with your investment strategy, never be SOLD an investment.
Visit www.aspirenetwork.com.au or call our office to be connected with an accredited and independent Property Investment Advisor on 1300 710 933.