Expert Advice with Brett Warren 11/07/2018
One of the major changes in the property investment industry over the past two decades has been the rise and rise of publicly available statistics.
Pre-2000, there was generally very little data available to property investors to help guide their decision-making.
Today, of course, you have expert blogs and magazines, as well as a plethora of statistics to interpret.
The key is to understand how they marry together to pinpoint a market about to strengthen.
1. Median prices
Median prices are sometimes considered a simplistic measure, but they can be useful for property investors on a macro level.
That’s because they track how prices are changing over a period of time, which could indicate more expensive sales from upgraders moving in or lower priced sales because first homebuyers are active in the area.
Understanding what prices are doing can be a precursor to identifying whether a location is on the way up or on the way down.
2. Stock on Market
The amount of stock on market can highlight a suburb that is strengthening or one that is softening.
Fewer properties on the market means that stock is tightly held, which usually means more competition which ultimately drives up prices.
Conversely, when there is too much stock – such as new units – there is less demand which will generally result in softer prices.
Investment grade properties are usually located in areas where there is more demand than supply, which underpins their price potential over the long-term.
3. Time on Market
Time on market simply means how long properties are taking to sell.
Of course, when there is more supply than demand, that usually means that time, or days, on market are increasing and that results in stale properties that have to drop their prices to attract a buyer.
On the other hand, when time on market is reducing, it is a sign that the market is heating up because there are more buyers than stock available – and that results in prices rising as purchasers compete with each other to be the winner.
4. Vendor discounting
This is a statistic which reports the percentage that vendors are discounting from their original listed price to secure a sale.
As I mention in the previous point, if a property is languishing unloved on the market because of an oversupply or an unrealistic vendor, then sellers will generally have to discount the listing price to secure a sale.
In a hot market, though, the final sale prices could be similar – or above – what the properties was listed for because of strong competition.
With this data, however, it’s important that you consider whether it is representative of the total suburb because one random heavily discounted property generally means a distressed seller rather than an area in trouble on the whole.
The first four statistics are representative of macro data that is often reported every month, quarter or year.
When it comes to demographics, however, identifying suburbs where the type of people living there are changing takes a bit more research.
As well as Census data, which is only released every five years, you can pinpoint areas that are gentrifying by looking for any changes in the types of shops that are opening up – barista coffee houses, for example, where a discount outlet used to be.
Another sign is a raft of renovations taking place as new people and new money moves in.
Of course, all of the data above, will also help guide you as price growth generally comes when a new demographic of residents arrive who have money to spend on their homes as well as on local facilities such as cafes and restaurants.
As I’ve often talked about, investment grade properties are the ones that will always been in strong demand from owner occupiers.
They are also located in areas that has a long history of strong capital growth and that will continue to outperform the averages because of the demographics in the area.
The bottom line…
At the end of the day, property statistics can help investors get a better understanding of how particular markets are performing.
The key is to look for the early signs of changes and make your move before anyone else catches on.
Brett Warren is a director of Metropole Properties in Brisbane and uses his 12 plus years property investment experience and economics education to advice clients how to build their portfolios.
He is a regular commentator for Michael Yardney's Property Update.
Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.