Seven statistics to watch to detect market changes
Investors are regularly told to try and get ahead in the property market by picking up on the signs that a change is occurring.
You need to know the norm for the area you are looking at. If it’s fast moving, then you may expect the statistics to swing a little more wildly. For larger areas, any significant changes should be noted carefully. Statistical reliability, and the problematic use of small sample set, is worth understanding. Always seek to know what caused the changes and whether it was as a result of a small number of properties rather than a market trend.
Of course, you will need to dig deeper – many statistics are broad market indicators and do little to help you specifically with individual properties, streets or types of housing, but the broad statistics can help you notice location-related changes first.
Here are seven statistics to keep on your radar to help you look for market movements. Each of these should be used in concert with one another and may lead to further research.
Median price changes
A change in the median price can be more indicative of a market change than you might think. While experienced real estate experts regularly lament the use of the median as a change in value, and rightly so, alterations in the median price are certainly not useless information.
In fact, an increase in price in the area may alert you to the possibility that more expensive stock has been built or that the prestige stock in the area is on the move. A lowering of the median price may suggest that cheaper properties have been built or sold, or that first home buyers are moving into the suburb.
Usually, median price changes are available on a month to month basis, however looking for longer term trends in the 12 month, and three, five and 10 year figures can also be revealing.
Rental yield trends
Trends in the rental yield can be an interesting figure to keep a close eye on. If the rental yield is starting to drop, particularly when the median price has remained steady, then you need to question whether tenants are potentially not paying as much for their rentals.
If the rental yield increases, then you might be finding an area where stock is starting to reduce – perhaps due to more owner occupiers buying in – and/or tenant competition is increasing, leaving them paying more rent for the homes. Look at the median rent figures and search listings sites to figure out why the number is changing.
High rental yields may also start to attract investors, so noting how strong the rental yield is relative to other local suburbs can also be a worthwhile exercise.
Vacancy rate
In line with the rental yield, the vacancy rate of an area is worth watching. This figure, supplied by a number of research houses such as SQM Research, and how it tracks over time can be crucial in understanding rental demand and how new developments affect a market.
Look for seasonal swings and changes, ensure you understand the area’s make up and note that some locations have routine dramatic vacancy rate swings.
Stock on market
The amount of available stock on market can quickly alert you to whether it is a buyers or a sellers market and whether this has been shifting in recent times.
When there are fewer properties available, particularly when older stock is getting purchased, it’s a sign that the market may be heating up. If this is working in reverse and more stock is coming on the market it may be a sign that buyers have more choice and perhaps that owners are cashing in on their capital gains.
Excess stock on the market, particularly when they are not moving fast (see Time on market) can be a warning sign, although may mean that deals are available.
Time on market
The length of time properties spend on the market waiting to sell is important for a number of reasons. It is a useful quick barometer of potential buyer demand for the homes, but changes can also let you know how long it may take you to sell in the future.
In a hot market this figure usually reduces – it also drops when large new developments launch strong marketing campaigns for quick sales – whereas in a cold, slow-moving market the figure will increase.
Vendor discounting
Vendor discounting is the amount that a seller drops their property’s listed price by. Usually represented as a percentage, a strong rate of vendor discounting can identify a cold or cooling market and can also signal a push for owners to move out.
It may suggest that further drops are expected. Similarly, areas with very little vendor discounting – and those that achieve over their listed price – can see the figure indicative of competition, heat in the market and strong sentiment.
A singular property being heavily discounted can often speak more of personal circumstance than market conditions. Be aware of the true cause.
Demographic changes
At the end of the list are the changes in the area’s demographics. This is a far slower indicator, usually gleaned from the latest Census results and from local council data, but is one that should not be overlooked.
Significant changes in the makeup of an area’s population can quickly assist investors in choosing areas that are gentrifying and seeing an increased number of young professionals.