Understanding Australia's housing market trends
Trying to understand housing market trends can be tricky. Money asks Greg Dickason from CoreLogic RP Data to explain what are the housing market leading indicators?
When I first got into investing in stocks, I made some decisions based on "hot tips" from friends and family.
My decisions did not work and I ended up losing money.
Over time I worked out my own strategy, based on simple research focused on price-to-earnings ratios and the payment of consistent dividends, a marker of cash management in a business. I also researched the long-term potential for an industry, such as the increased spending on healthcare.
The same basis can be used for property, both in choosing the geographic area to invest in and then the particular property.
As an example, Moranbah in Queensland had a ramp-up in pricing by over 50% between August 2011 and October 2012 and then halved in price by April 2014. Were there ways to predict the rise and fall in prices?
Moranbah's sales volumes peaked in March 2012, six months before prices peaked. The median time from listing to sale was the lowest in June 2012, three months before prices peaked; and the rental yields started dropping dramatically from March 2012, again six months before prices peaked.
Housing market lessons
Is there a lesson here for other areas, ones not as exposed to a particular industry the way Moranbah is to coal?
Although changes in non-price market metrics do not always lead price changes, they very often do.
Metrics like the median rental yield, the median time on market, the auction clearance rate and the ratio of listings to sales can show changes in market sentiment before there is any shift in prices.
This is because these metrics are proxies for market demand and supply and hence predict the momentum for value growth or decline.
When they change there is a good indication the market is changing.
As an example, in the two years of increases in values in Sydney, for the Mosman local government area there was a decline in median time on market from 75 days to less than 40 days, while values rose over 30%.
Understanding housing market trends in the non-price metrics can significantly help in optimising the timing for when to buy and when to sell, and help in building sustainable property wealth.