With a little over one quarter of the year gone, I think it’s an opportune time to check on the progress of the property market, based on a number of key indicators provided by RP Data. I have also added some comments on what we need to see happen to these key indicators to give us a sign that the property market is improving.
BY PETER KOULIZOS
Days on market
The average time it takes to sell a house or unit has increased in the past year. Twelve months ago, it took on average 75 days to sell a house and 65 days to sell a unit. Fast-forward to today and the time taken to sell property has increased. It’s now taking on average 78 days to sell a house and 67 days to sell a unit. The days on market needs to decrease to give us a sign that the property market is improving.
Vendors have to discount their properties even more this year if they want a sale. Last year the average discount on a house was 6.9 per cent; this year it’s 7.4 per cent. The increase in discount on unit pricing hasn’t been as big; from 5.8 per cent last year to 5.9 per cent this year. Vendor discounting needs to decrease.
Auction clearance rate
This has increased over the last few months to be currently sitting at around 50 per cent. This is an improvement on earlier this year, where the clearance rate was only 37 per cent! More than half of all properties that go to auction need to be sold at auction so as to give us an indication that the market is picking up.
Properties for sale
The total number of properties for sale is currently 302,000. This is more than twice as many that were on the market during the mini property boom of 2007, where there were only 140,000 on the market. However, the current number of properties for sale is slightly lower than the peak reached late last year of 325,000. This figure must drop substantially. I’d prefer to see the number of properties for sale drop to below 250,000 to be confident that the market is heading towards a sustainable improvement.
Underlying inflation is under control as it sits between the RBA’s (Reserve Bank of Australia) target range of two per cent to three per cent. I’m happy for underlying inflation to stay within this band. If it starts to increase, this is a sign the economy is improving.
The RBA cash rate is steady at 4.25 per cent. The last decrease in interest rates was four months ago. I see the RBA dropping the cash rate another 0.5 per cent. This should provide some spark to the property market.
Increased slightly last month from 5.1 per cent to 5.2 per cent. One of the reasons I see the RBA cash rate dropping is that I forecast unemployment will increase marginally in the short-term.
Full time vs part time jobs
The growth in part time jobs is being outstripped by the growth in full time jobs. This trend needs to reverse as it’s people with full time jobs that are more likely to have the borrowing capacity to buy a property.
Overseas migrant numbers are increasing. In the 12 months to September 2011, there was a net increase of approximately 43,000 migrants. The number of overseas migrants and international students needs to continue to increase. This will result in rents increasing as the demand for rental property intensifies.
I have left the most important indicator to last. The consumer sentiment index is at 96.1, according to March 2012 figures. It’s essential for this number to be move above 100 if we’re to see a welcome improvement in the economy and the property market.
Written by Peter Koulizos. A lecturer and author of The Property Professor’s Top Australian Suburbs (John Wiley & Sons). For more information, go to www.thepropertyprofessor.com.au.