Reading Between The Lines
If a typical Australian wants to get a snapshot of what’s happening in the property market, they often make up their mind based on two figures – the auction clearance rate and the median house price. If they’re looking really big picture, they might take the national figure for the whole of Australia and if more detailed, they’ll look at the figure for their state.
Unfortunately looking at one or two figures does not really tell you much about the market and it certainly doesn’t give you the information you need if you’re investing $500k or $1m into a home or investment property.
Every suburb has multiple property markets and you could even say that an individual street has multiple markets too. The markets are differentiated by houses, units, new, old, expensive, cheap, those with parking, those without, high side of the street, low side of the street, north facing and south facing, etc. Go and ask the sales agents what always sells well and what always struggles to sell. Then go and ask the rental agents and see what always rents well and what doesn’t. There are micro markets everywhere and one maybe rising whilst another is falling.
In the areas I buy in, I know that secon dhand, 2-bedroom units, in small blocks, with parking, within 500m from the beach/shops/centre that are around the median price are always in demand and the clearance rate is nearly always 100%. But as soon as you don’t have the parking, are on a main road, in a bigger block, then in the good times they’ll still sell, but in the tougher times, will always stay on the market for longer or will drop their price. Those could get a 50% clearance rate, giving you an average of 75% between the two.
Expensive house $5m+ are going to sell differently from $500k - $1m median priced units as not everyone can afford a $5m house and so the demand is a lot thinner at that level. When the credit crunch hit over the last few years you could argue that the super wealthy weren’t affected but the average person was and so that will change the demand and clearance rates at different price levels.
SQM Research quoted that Sydney property dropped by 7.4% in 2018 and if you look at Domains graph for 2-bedroom units in Alexandria it did just that. However, if you look at 2-bedroom units in Bondi Beach, they actually rose by 3.5%. So, two completely opposite stories about the markets that are less than 10km away from each other.
Sometimes there are so few properties sold in a week that results have to be averaged. And if a new development has just launched, one week you might get lots of $500k sales and then the next week a bunch at $1m, but that doesn’t mean the median priced has really changed and the area is showing some growth or a drop. So, the results have to be edited – sometimes they call it seasonally adjusted. Again, there’s nothing wrong with that, but it leads to more interpretation.
Individual markets can change very quickly because of government or bank intervention. For example, when there are first home owner grants for new property at a certain price point that can lead to excessive demand in certain areas which will skew the results. The same can also be seen when they suddenly reduce the lending to investors or to foreigners that are buying new off the plan properties.
A number of investors will also look at a suburb's vacancy rate and use that as a guide as to whether to invest there. While that might give you a very rough indication, it can be irrelevant if you’re buying the right property at the right price in the right condition as often that will always rent if you have the right demographic. Vacancy rates can also indicate people buying the wrong property, in the wrong condition at the wrong price point for the locals. The right property should have 0% vacancy even in a suburb that has an average of 5-10% vacancy.
The only way to really know what’s happening in a market at a certain price point is to get on the street and inspect as many properties as you can. Note the price the agents are quoting and then follow it through to the auction. How many people are attending, how many are bidding and what is the final price they get compared to the quoted price. You really need to inspect 50 – 100 properties in an area before you even start to get an idea of what’s really happening.
About Chris Gray: Chris Gray is CEO of Your Empire, a buyers’ agency which builds property portfolios for time-poor people – searching, negotiating, renovating and managing property on their behalf. Chris’s team buys up to 1-2 properties a week and often spends up to $5m+ a year renovating on others behalf, providing a unique insight into market conditions and buyer and seller sentiment. Chris has been the host of ‘Your Property Empire’ for over 10 years on Sky News Business channel, where he’s interviewed various heads of property research companies and major industry figures. Chris is a qualified accountant, buyers’ agent and mortgage broker. For more information, visit www.yourempire.com.au.