Whether you’re thinking about home loans in the big capitals or considering property in one of Australia’s regional areas, you want to make sure you’re buying in a strong market. This is particularly the case if you’re hoping to use this property for investment purposes.
As a buyer, there are a variety of metrics you can use to evaluate the strength of a particular property market. Below are some of the major signs you can look for to figure out whether or not the market is oriented to your purposes.
The number of auctions taking place is a good indication of where a particular market is headed. Auctions are one of the most common ways of buying a house, so large auction volumes indicate that there are plenty of sellers out there looking to hand over a property. It also suggests that there is strong demand in a particular market for real estate, which is feeding this sales activity.
The clearance rate — or the percentage of successful auctions — should be analysed together with auction numbers. For buyers, higher auction volumes coupled with a lower clearance rate are typically more favourable, because it means less competition from other buyers and more competition between vendors. For sellers, it’s usually the opposite.
The strength and high activity of the Sydney market, for example, are well-reflected in these figures. For the week ending February 15, CoreLogic RP Data noted that auction volumes were stable in Sydney, albeit less than the huge number recorded the same time last year, while the clearance rates over the weekend hit a high 77.9 percent. It suggests there’s continued strong demand in the Harbour City, where buyers are facing stiff competition for property.
There’s been much talk about property prices in Australia over the last few years, and it’s no wonder. The price of a home is your chief entry point into the market — while you can always potentially outbid another buyer, if a home loan calculator tells you you can’t afford any of the real estate listed in an area, there’s not much you can do about it.
House price growth is an advantage for sellers (and home owners) more than buyers, but it is also typically a sign of a healthy house market. If prices are growing, it indicates there continues to be good, steady demand for property in an area — though this also depends on the nature of the growth.
For instance, in 2014 and even now, a potential Australian property bubble has been talked about in hushed tones, mainly due to the meteoric growth in average house prices experienced last year. Until around September, according to RP Data’s Hedonic Home Value Index, dwelling values were climbing at high rates in practically every capital. Only on February 2 did CoreLogic RP Data Head of Research Tim Lawless say: “In a sign that housing market conditions are gradually cooling, the rolling annual rate of capital gain has been trending lower.”
So the key is not simply general growth, but sustainable growth that doesn’t leave buyers relying desperately on saving enough through a high interest savings account.
Before you can attempt to buy houses, those houses have to be built. This is why the amount of building activity and the state of the construction industry is often a good portent of a thriving real estate market.
If builders are getting work and construction projects are popping up all over the place, this means an injection of a new supply of housing. With a greater amount of supply, buyers not only have more choice, but price growth tends to level out or even move into negative figures.
Master Builders Australia CEO Wilhelm Harnisch recently said as much, when he called for further construction of new housing “to exert downward pressure on house prices and to ensure that the intergenerational home ownership gap does not widen for first home buyers”.
By contrast, a market with a low level of building activity could be stagnant — it suggests a lack of demand for new housing, lower levels of financing and even a lack of will to construct new properties.