Residential property is possibly one of the best tracked markets, but when it comes to data it can be difficult to know what to look for and what really matters.
Here are the top five statistics to track when you are looking to understand where the market is headed.
1. Median prices
Watching median house prices change is currently the best way to see how the market is performing and it is possible to look at this data daily with CoreLogic RP Data providing an index for five capital cities.
Once you have narrowed down the suburb you want to buy in, median price changes by area can be found on realestate.com.au/invest. Right now Sydney and Melbourne are continuing to see price growth. Perth is the weakest market where prices have dropped by 5.6%.
2. Rental rates
Strong rental increases, coupled with strong increases in median prices, show that the market is strong from people who want to live in houses, as opposed to investors speculating in that market.
CoreLogic RP Data on rental rates is currently showing rental declines in Brisbane, Adelaide, Perth and Darwin. However, no city is seeing rates in excess of 2% per annum. This slow rate of growth suggests that demand for housing is slowing and the increase in prices being seen in Melbourne and Sydney is increasingly being driven by speculation.
3. Clearance rates & number of auctions
In Sydney and Melbourne looking at clearance rates gives a weekly indication of the performance of the market.
Generally, if clearance rates are:
Above 80% – very strong conditions
70-80% – strong conditions
60-70% – moderate conditions
Below 60% – slow market
It isn’t enough to look at clearance rates – the number of auctions is also an indicator. Right now, the clearance rate in Melbourne is close to 80% but the number of auctions has dropped significantly. This would suggest a slowing market.
Sydney has both a growing clearance rate and an increasing number of auctions indicating a very strong market.
In slow market conditions, it is more unusual for an agent to recommend going to auction. The strength in Melbourne and Sydney is not evident in other capital cities and both auction numbers and clearance rates are low.
4. Interest rates
Low interest rates have been a key driver in investment in housing. Cheaper funding allows people to borrow more which leads to price growth.
Right now we are seeing record low-interest rates and the outlook for rates is for a continual decline. While money is cheap, access to funds is increasingly challenging for investors – both locally and offshore. For this reason, understanding restrictions to financing is also important.
Finally, keeping a track of upcoming supply provides an indication as to whether there is too much or too little housing being developed. The ABS tracks a range of housing supply indicators including housing approvals, completions and commencements.
My personal favourite is the approval data as it provides a better idea as to what the pipeline is, so is forward looking.
Although not all developments approved will be completed, a market where we are seeing high development approvals, combined with a drop in house prices and a drop in rental rates, is challenging. Right now, that is Perth.