No doubt you already know that the property market is not a single homogenous beast. While the media tends to talk about it as an entity of itself, the property market is made up of many moving parts that come together to indicate the general health of the real estate sector.
Understanding the moving parts of the property market, and how these are used to evaluate the overall health of the sector, is a skill every property investor should possess. This knowledge will help you decide with more certainty when to buy, sell and hold your property investments and ultimately increase your return on investment.
The numbers all property investors need to understand
When it comes to understanding the moving parts of the property market, there are certain numbers to which property investors should pay close attention. These indices point to market trends and help forecast future movement in the market. Here are the numbers all property investors need to understand to position you to get the most out of your investments.
This has been the big number to follow since the end of the boom in 2017. This measures the value of property (not sales or listing price) and has been in steep decline throughout 2018 and 2019, particularly in Sydney and Melbourne. However, it appears the decline in property value is slowing, with June results indicating a small increase in Sydney. This is a sign that we could be near the bottom of the property cycle, with stabilisation and recovery ahead.
There’s no surprise this number has taken a beating in the last two years, during this market correction. However, recent research from CoreLogic has revealed improved confidence in the market was beginning to occur even before the positive boost in sentiment following the federal election and the first of the interest rate cuts. This rise in investor confidence is set to continue, particularly with signs of improvement across other parts of the market.
Auction Clearance Rates
In another positive sign, auction clearance rates are on the rise. The Sydney market recorded an auction clearance rate of over 60% in June, proving there is growing life in the property market. While the number of properties going to auction is still relatively low, stronger auction clearance rates point to a better fit between buyer and seller expectations. It’s clear that buyers are ready to take action when quality properties are well priced.
Settled Sales Activity
Again, this is a number that has decreased as the market has contracted over the last two years. Based on estimates of settled sales, activity in the June quarter is roughly in line with previous troughs recorded over the past two market corrections. If history is any indication, this means settled sales activity is poised to grow. With more properties expected to come to market during spring, this is a positive sign for investors looking to return to the market.
After leaving rates on hold for over two years, the Reserve Bank slashed the cash rate In June and again in July, reducing the rate to 1.00%, the lowest on record. The flow on effect to interest rates has relieved pressure on mortgage holders, including residential investors. With further rate cuts still an option, record low interest rates present an opportunity for investors to increase repayments, improve cash flow or look for new investment opportunities.
Credit has been harder to obtain for property investors, further exacerbated by more stringent conditions being placed on loans by the banks, following the findings of the banking royal commission. Conditions are now beginning to ease, with APRA relaxing it’s restrictions in a bid to stimulate the market. While credit is still not as easy to obtain as it was at the height of the boom, this is a good sign for astute investors looking to add to their portfolio.
Right now, the moving parts of the property market all indicate we may be heading towards the bottom of the property cycle. This presents a golden opportunity for investors to purchase when prices are at their lowest, allowing you to take full advantage of a rising market.
Interested in finding out more about the moving parts of the property market? Vision Property & Finance has the knowledge and experience to guide property owners and investors towards greater understanding and better results. Call 02 8354 3000 to contact our Sydney office or 02 4014 1999 to talk to someone in our Newcastle office. You can also contact us here.