The real estate sector has changed in myriad ways over the years – especially over the past two decades.
Not only has the way property is bought evolved to engaging skilled professionals like buyer’s agents, but (slowly but surely) investors are understanding that the odds of better performance are much greater if the blinkers are removed and the location search is extended well beyond one’s home town.
Another big change is a majority of people benefitting from the expertise of mortgage brokers.
In this age of technology, there’s now a plethora of data sets available. No one has a crystal ball, however astute analysis of good data can be very useful for making more informed decisions.
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Not all data is worthwhile. In fact, some of it can lead novice investors down a rabbit-hole to nowhere land.
Some property metrics are more useful than others. For me, the most useful information has absolutely nothing to do with recent property price changes.
Most of the property-specific data is a reflection in the rear-view mirror. While we can always learn some great things by looking at the past, the best decision to invest today requires a focus on the front windscreen and an attempt to see what’s on the horizon.
On the “demand” side of the price equation, I consider employment-related information to be the most valuable because it provides insights in to where economies are strengthening (and weakening).
My obsession with property economics is born out of a strong personal belief that where ever there’ll be more jobs in the future there’ll be demand for more shelter. But, of course, anything related to property markets is never anywhere near as simple as that.
Other data that I spend many waking hours studying range from macroeconomic indicators, such as overseas and domestic visitor data, passenger volume trends across every single airport in the country, and migration data (both interstate and overseas).
Then there’s other economic statistics like export volumes, commodity prices, retail trade and a bunch of general stuff to gauge the future strength of economies in general.
There’s no definitive answer for economic futures but anticipating it correctly will have a huge bearing on the performance of your investment property.
There are no shortcuts for anticipating future economic trends. I make it part of my daily habits to consume copious amounts of information about the local economy of every location in Australia. Did I tell you about the wonderful opportunities within parts of regional Australia?
Some micro property data can be useful to try and anticipate short-term price movements. These include metrics such as days-on-market, the volume of dwellings listed for sale, vacancy rates and loan approval volumes.
If there’s one thing I’ve learned as a full-time student of Australian real estate, it’s that in every single year there will always – absolutely always – be oodles of individual towns and cities with property markets that perform well.
So, to have any chance of discovering a location with a property market that outperforms over the next few years, one must – absolutely must – review all of the metrics of every Australian location.
I liken the 550 individual city councils spread across Australia’s eight states and territories as the equivalent of the companies on the stock exchange. Anyone who limits their attention to the 139 city councils that make up Australia’s eight capital cities is doing themselves an enormous disservice!
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For anyone wanting to consider themselves as a property expert, here is a snapshot of the data that I consider to be useful. As you can see, there are quite a few!
- Job volumes per industry sector
- Wage growth rate
- Overseas migration volumes
- Interstate migration volumes
- International visitor volumes
- Export volumes
- Commodity prices
- Agriculture commodity volumes
- Retail trade
- GDP data
- Median household ages
- Median household incomes
- Volume of detached versus attached dwellings
- Dwelling ownership ratios (owned outright, mortgaged versus rented)
- Birth and death volumes
- Employment volumes
- Employment advertisements
- Employment growth (public versus private sector)
- Property sales volumes
- Property listing volumes
- Vacancy rates
- Building approval volumes
- Building completions
- Loan volumes (owner-occupiers and investors)
- Median property values
- Changes in median property values
There is a bunch of data that regularly takes up column centimetres in news stories but, if you ask me, it’s as useful as a fur coat on a scuba-diver.
Some of my frustrations with the use of data in property commentary include the numbers being too volatile (an insufficient sample size of data), the data being so Sydney-Melbourne centric that implies the rest of Australia is the same, or very selective use of data to support an author’s personal confirmation bias.
It’s essential to have proper context and the full picture!
Here’s my top five (5) useless data-sets.
Suburb changes in median property values
Let’s be perfectly clear here – property values within a specific suburb cannot boom unless the broader city itself booms. Yes, I know pretty much every month there’ll be a report somewhere with a ‘Hot-Spot’ headline and a story about any number of suburbs producing double-digit growth. Median value changes are determined by the sale price of the individual properties that changed hands during the reporting period. At a suburb level, the volume of properties that sold is far too small to be a reliable measurement of what’s really happening with property values. It’s the 3-card trick that catches out many people. In any case, no one can invest in last year’s gains. We must focus on the various factors which are likely to influence the next few years.
Median household income to median house price (ratio)
Some economists seem to give the impression that this particular metric is as valuable as gold bullion. However, to me (and every single credit assessor whose role it is to approve loans for the purchase of property), it’s as useful as mouldy bread. Why? Because every single household has a different income and most cities have properties that range in price anywhere from $220,000 to $2 million. It’s a useless ratio!
An unemployment rate for a state tells me nothing useful about investing in a specific city. At an individual city level, the smaller volume of data tends to cause unemployment rates to jump up and down like someone on a pogo stick. And unemployment rates only tell me about the here and now. Whether we’ve made a good investment decision today won’t be known for a few years.
If Propertyology relied on unemployment rates, we could have never possibly discovered the future potential for Hobart’s property market until well after it was unfolding. When we gave Hobart our official “green light” in early-2014, its property market had been dead flat, and the unemployment rate was 2.5 per cent above the national average. Yet it was our expectation that Hobart’s economy would significantly improve that ultimately led to us investing there. We backed our professional judgement, helped lots of people invest there before the growth started, and had moved on to other locations by the time the bandwagoners had jumped on board.
The main issue with population projections is that there is zero science to the forecasts, and they are therefore totally unreliable. Population trends change rapidly and are largely influenced by future economic trends. I’ve lost count of the number of times that I’ve said that population growth is far from the biggest influence on property price growth.
Auction clearance rates
Only a very small proportion of properties are sold using the auction method and it’s a significantly smaller volume in locations other than Sydney and Melbourne. Clearance rates really serve little value to us as analysts other than a weekend pulse-check of buyer sentiment within two cities. Yawn!
Most of the best information that we draw upon to make more informed decisions are not in data format. Propertyology places considerable value on various publications from industry sectors, planning documents, announcements, proposals, industry threats, various policies and initiatives, and more.
Our objective is to anticipate how a decision or action today might be reflected in future data.
Sophisticated property investors know that they can’t rely on algorithms for making decisions as important as investing in property.
As an analyst, each piece of information is akin to a piece of a big jigsaw puzzle with the objective being to gather all of the pieces together to create a verifiable picture.
It’s important to appreciate that it’s a science, but by no means an exact science! Exact implementation dates of important pieces to the puzzle and the community’s response will be unknown. And something could change tomorrow that one couldn’t have been aware of today.
After all, what could possibly be more unpredictable than human behaviour?
Propertyology is Australia’s premier property market analyst and award-winning buyer’s agency. Every capital city, every non-capital city, we analyse fundamentals in every market, every day. We use this valuable research to help everyday Aussies to invest in strategically-chosen locations (literally) all over Australia. Like to know more? Contact us here.