If you’re a property nerd like me, and like to keep up to date with and continually analyse the data to make sure you’re making informed property decisions, there’s something you need to know.
And even if you are not, I am about to share what I believe to be the most important piece of property data you should be analysing for the next decade.
And I bet for 99% of the so-called “property experts”, it will barely rate a mention.
Before I reveal the answer, however, it is important to take a step back first and understand how our economy will look and function over the short to medium term.
While Australia’s inflation rate has passed its peak, it's still far above the 2-3% target range earmarked by the Reserve Bank of Australia (RBA).
In fact, the RBA does not expect inflation to return to “normal levels” until 2025.
This means it’s possible interest rates may remain higher for longer too.
Australia’s unemployment rate, however, continues to be at almost its lowest level in 50 years, at 3.5%.
And at the same time, reflecting both low unemployment and high inflation, annual wage growth has reached its highest level recorded since the September quarter of 2012, at 3.8%.
The problem is, while the wage growth shows an impressive uptick, is nowhere near in line with inflation, and our hip pockets are suffering.
And some people, in certain areas, are suffering far more than others.
You see, no matter what point our economy and property market are at, understanding inflation and wage growth trends is more important than you realise.
Yes, it affects our finances directly, but it’s also a very important data set to look into for your property investment research.
Because in locations where wage growth is growing minimally, there is a strong argument to suggest that property prices will do the same.
So what should a property investor do?
I’d look for areas where people’s income will continue to grow above the state averages by analysing wage growth data.
Because moving forward, our markets will continue to be fragmented so it will be more important than ever to find areas where wages growth will outperform the averages because these are locations where people are likely to be able to afford to pay more for their properties.
I must also stress, this is not a judgment of people, but an analytical perspective on the data.
FOLLOW THE MONEY
This chart from SQM Research is for Melton, a typical growing outer Melbourne suburb and it shows how wage growth in that suburb has not kept up with overall wage growth in Victoria.
I guess that means that many local residents live paycheque to paycheque and tend to have lower rates of savings and financial buffers and will not be able to afford to pay for the type of property they’d like to own.
This is a good example of the type of location you need to avoid when considering a property investment.
And this suburb isn’t alone, there are many similar suburbs, generally located in the outer suburbs of our capital cities and in regional Australia, which are suffering a similar fate.
But some Aussies are earning more
Not everyone lives week to week, from paycheque to paycheque.
Some higher-income earners have multiple streams of income and don’t just rely solely on a weekly wage:
- Many are professionals with bonuses and commissions on top of their wage
- Many invest in property and the value of properties and rents will increase over time
- Others invest in shares and receive dividends
- Yet others have savings and other investments that return an income
- Some have a side business
Here is the type of location we look for, as you can see the weekly family income in this suburb is growing much faster than the state average.
These types of locations are usually more established suburbs in our capital cities which are located close to major employment hubs.
Remember the 20-minute neighbourhood?
After all, many people love the thought that most of the things needed for a good life are within a 20-minute public transport trip, bike ride, or walk from home.
Things such as shopping, business services, education, community facilities, recreational and sporting resources, and some jobs.
These will be the locations where property prices will rise because there will likely be a shortage of supply relative to the larger demand from an affluent, aspirational demographic.
This demographic will continue to get emotional, pay too much for a property, and over-capitalise on renovations and rebuilds, all forcing up property prices.
They will do this because they have multiple, increasing incomes.
This type of demographic also has a secondary effect – they have the insurance of financial buffers.
Almost every year there is an X-Factor or Black Swan event.
It could be anything from a GFC-style event to a flood, a political change, or even a global pandemic, so savvy property investors always keep this in mind.
The more affluent demographic can ride these events out thanks to their higher rates of savings and financial buffers to help protect against volatility.
Put simply, they can weather the storm.
But most Aussies cannot.
Their lower incomes and lower savings rates of many Australians mean they are often forced to sell up or move out in times of major stressful events.
This is the same demographic currently struggling with a higher cost of living, high interest rates, and skyrocketing rents.
They just can’t keep up.
As a result, the locations where they live are more volatile and I would avoid putting my capital there.
There are hundreds and hundreds of different pieces of data you can analyse as an investor.
But, as our property market moves into the next phase of its cycle, I feel that weekly income and wage growth will continue to be one of the most important indicators for our fragmented property market.
The vast majority of people will not see a significant boost in their weekly wage over the short to medium term and property prices in the areas where they live will languish.
On the other hand, locations, where higher income, often knowledge workers, or those with a tertiary degree want to live, are likely to outperform.