Panic in the Headlines: Does 1 Set of Numbers Tell a Story?
Housing prices are volatile, and the media loves to latch onto any changes with big headlines. They want to scare us into believing that there is an impending housing bubble, that the market will slow down, that the market will fall or some other painful outcome. However, one set of numbers doesn’t tell a story.
Panic in the headlines? How do we tell the story?
Rather than looking at isolated numbers, we need to look at the trends in the information. The rule in share trading is that the trend is our friend, a simple but useful statement. Trends tell us that if the current circumstances continue, we will get more of the same results.
Experienced property investors want to know when the trend is going to go up or go down. If demand for housing goes up rapidly, we usually experience strong capital growth. This is a very useful outcome to increase our net wealth and reduce our risks from borrowing to invest.
On the other hand, if demand is about to go down rapidly, we can factor this into our strategy. If we can assess the length of the downturn, we can be further informed. If we are going to retire in five years, we might hold our property. If we are retiring in one year, we might sell it now to retire debt on other properties.
Many of us have a real estate view of the trends. We are studying actual history and projecting it into the future. This sector looks at auction clearance rates, vacancy rates, and price growth to tell their story.
Vacancy rates are a measure of demand to live in an area. In Sydney the vacancy rates have been trending down since 2021 and Melbourne has been similar, they are trending down and are currently at 2.0%. This is putting pressure on rents. Both markets show peaks of vacancy rates in December and January as families don’t move over Christmas and the summer holidays.
Auction rates tell us a lot about demand and supply. In Melbourne they have stayed the same 59% (last year at this time) and 59% now. Whereas, in Sydney, trends from 61% (at this time last year) are now trending down to 52%. While both trends are downward, they are still high compared to historical trends. Capital growth is declining in both markets, however it is time to watch more closely as increasing interest rates take effect.
Property investors, what do we need to do to watch more closely?
Our job as property investors is to know the trend and have a helicopter view of all the disrupters. These are usually based in economic indicators. Disrupters that drive trends up include increasing population growth, increasing economic growth, and increasing confidence. Disrupters that drive trends down include increased unemployment, increased tightening of finance and increased road congestion.
The banks are currently tightening their rules for borrowing, increasing the hurdles to service loans and increasing interest rates. These are disrupters of the trend as fewer people will qualify to borrow and this will slow demand for property.
However, this change needs to be balance against demand from increasing population growth. If we have strong population growth the impact of the tightening of finance will be outset against this demand. Population growth is trending up strongly in both cities with Melbourne growing faster.
Between 2011 and 2021, Melbourne had the largest growth (up by 806,800 people), followed by Sydney (650,800) and Brisbane (421,500).
Both Melbourne and Sydney have strong economic growth that is unpinned by huge investments into infrastructure. Infrastructure can change the accessibility of an area ‘instantly’. If we take 10 or 20 minutes from a car trip, the affected properties are perceived as more valuable. It is as if they just moved five or ten kilometres closer to the CBD.
Sydney is well on the way to delivering METRO stage 2. This rapid transport system will take passengers from the north-western suburbs into the city with trains at 4 minute intervals. Prices in the northwest exploded with the announcement of this investment several years ago.
Melbourne is implementing a second Maribyrnong River crossing and freeway that will increase the accessibility of the western suburbs into the city and the port areas. The Westgate Bridge crossing is a tough commute in the mornings. This new infrastructure is likely to increases property prices in affected areas.
How can we gain greater insights into the disrupters of the trend?
Government policy is the fastest change to disrupters. Wouldn’t it be useful to know the migration policy of the Federal Government so we would have a further insight into population growth and the story of demand for property? What is the Government planning for immigration over the next year or so?
The media often sells fear of changes in the trend, just like property spruikers who sell the sizzle. A well-constructed strategy is not about fear; it is about risk management. Know the trends, know the disrupters, or buy professional advice.
As a mortgage broker, it is essential that you guide your clients throughout their property investment journey. Vision Property Investment offers a fantastic tool that can help you accurately inform your clients on the right property, the right data and trends, and the right cash flow projections.
Do you want to know how to increase the lifetime value of your client? Come along to our PIERS platform demonstration! Register now or contact Vision Aggregation for more information.
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