What Do Listing Volumes Tell Us?
Many investors look at capital growth figures, auction clearance rates and rental yields, but aside from these standard metrics, there are other informative statistics that can give us a lot of information.
From ABS income analysis to birth rates, sophisticated investors can also focus on some of the growth drivers that impact certain areas; and they can identify gentrifying suburbs with rigorous analysis. But what can we glean from listing volumes?
Generalising the count of listing numbers will certainly give a firm idea of overall supply and demand for a given location. Breaking up the listing numbers into dwelling type, bedroom number, single level/double storey, (and so on) will give us a far more accurate feel for the supply and demand relationship amongst varying property types. Overlaying this information with days on market (or in the case of auction markets; specific auction clearance rates) will highlight the dwellings that are in highest demand.
It is important to recognise those dwelling types that are experiencing high demand due to a glitch, versus those that are consistently in high demand in a given area. For example, if an area typically boasting a strong number of two bedroom single fronted Victorian cottages and terraces exhibits a lull in properties for sale in a given month (but ordinarily typically offers an average of four properties for sale per month), we can anticipate that demand in the lull month will be considerably stronger than the average month. Glitches can happen all the time in the world of real estate, but understanding the dwelling types that are in high demand constantly is key to selecting an out-performance asset.
Adversely, high listing numbers of properties that are over-supplied based on the demand in the area for that particular type of dwelling could lead to disappointment for an investor who hasn’t done their research. Determining whether the high listing numbers are likely to continue can make the difference between buying advantageously versus buying an under-performing asset. For example, if a given area is over-supplied with apartments, the investor needs to establish whether a continuing supply of new apartments is likely to threaten their capital growth strategy. Volumes that exceed demand can lead not only to a marginal capital growth rate but a higher chance of vacancy and diminished rental returns in the face of landlord competition.
Aside from new construction, an over-supply of a particular dwelling can occur for a few reasons. Back in 2008 and then 2009, when credit was initially abundant, then later followed by the Victorian concessions and stimulus offerings, our city fringe experienced high purchase ‘house and land’ activity when first home buyers and families took advantage of high Loan to Value Ratios, low-interest rates and bonus cash offerings. When credit tightened and rates increased, many of these houses were advertised for sale and a glut occurred in a marketplace where brand new construction was still favoured with the incentives on offer. Over-supply of properties for sale and rent plagued these areas and performance was lacklustre for some years.
Factoring in seasonal supply and demand is integral too. In metropolitan areas that almost every real estate office completely shuts down over January, we can’t expect that this particular month will give an investor adequate insight into listing numbers. Likewise, colder cities that experience a dip in property listings in the thick of winter won’t necessarily give valuable insight either. And holiday hotspots that have a deluge of excited visitors every summer will likely run counter to the metro areas when days on market, sales volumes and supply:demand ratios are considered.
Lastly, contemplating the demand part of the equation is essential. Is the demand consistent? Is it changing? Is the contingent of high demand households increasing? If the latter is the case, investors who can spot the trend and get in early could find that their asset experiences an exciting burst of sustained growth. An example of this is to consider how popular renovated, single level dwellings in Fitzroy are for baby boomers and downsizers.
Listing volumes are only part of the overall big picture but when the dwelling types are closely assessed, we can surprise ourselves with our ability to identify a high-performing asset.