We’ve looked at the data behind the concerning real estate headlines. In this article, we’ll give you the lowdown on the trends that are shaping our property market this year.
If you only looked at the headlines, you’d be pressed to conclude that 2023 is shaping up to be a bad year all around for Australia’s property market.
The media has taken on an ongoing narrative that the property market’s been crashing. Not to mention that growth is nowhere to be found.
Wouldn’t you agree that it’s quite simplistic to lump the entire nation’s property market as a single entity… when in fact it’s made of many different markets and real estate segments?
This is exactly why we’re pretty big advocates of looking at the data behind the headlines. After all, growth is still there if you know where to look.
Now, don’t worry—we’ve done all the looking for you. We’ve gone through the data… And we did find three interesting trends that are shaping this year’s real estate market in Australia.
Spoiler alert: the following trends prove that the real estate market is not doing as badly as the headlines would have us all believe.
Trend #1: Decreasing Days on Market
The first trend we’ve noticed is a significant decrease in the Days on Market metric.
This measures the number of days a property remains on the market before it is sold. A low number of days on market indicates high demand for properties in an area. Meanwhile, a high number generally indicates low demand.
What we’ve found is that in some suburbs, Days on Market had been steadily dropping since January 2022. In fact, there’s been an acceleration in the speed by which Days on Market is declining!
You already know what that means—market heat is not coming off the boil at all. There’s heightened buyer activity, which could mean a couple of things:
- There’s a constrained supply of housing
- The supply is steady, but the demand is rising
- Demand is rising at a faster pace than the supply
In any case, it’s a real sign that momentum is building up in specific markets.
Trend #2: The Rise of Inter-LGA Migration
The headlines have been talking about a massive exodus to affordability. This makes us picture hordes of people moving out of their million-dollar suburbs in Sydney… and U-hauling their entire lives to some regional town where the median price is at, say, $400K.
But the numbers tell a somewhat different story than that. After all, affordability is a highly relative thing.
Sure, there are people moving across regions to chase that more affordable lifestyle. But we’re also seeing a rise in inter-LGA migration. This means a lot of people are happy to move around in the same location… even if that means they’re only shifting to a slightly more affordable lifestyle than they currently have!
That’s understandable since inter-LGA migration makes more sense for people who want to keep their current jobs.
So, the next time you see a headline about the exodus to affordability… remember that affordability is relative. And it doesn’t always mean people are living the city life to live a completely regional one.
Trend #3: An Emphasis on Shifting Yields and Median Rents
Mainstream media has a tendency to overemphasise the yields in specific markets and suburbs. This is why many investors get hung up on chasing properties above the 6% yield threshold.
While there’s nothing wrong with wanting good yields, it’s quite a reductionist view not to consider the rate of change in numbers like yields and median rents.
You could narrow your search to 6% yield properties and end up buying in a location that had been stagnant at 6% for a couple of years now. This means rents in that area are unlikely to grow any time soon.
On the other hand, you could purchase a property where the median is currently at 5%.. but has a lot of upside for growth.
What happens is that you look back on those properties in 18 months or so and the 5% yield on the second property might now be at 6.5%. And the 6% yield on the first property… It could now be at 5.8%.
Of course, there are a lot of factors involved that contribute to this difference in the rate of yields and median rents. And some of which we could accurately predict.
One such factor is the type of asset you might be looking to buy.
Let’s say you had half a million dollars to buy a property. You could use it to purchase a single-family home to get a 6% yield and about $600 a week in rent. Or, you could spend your $500,000 on a duplex for $300 each side.
There doesn’t seem to be any difference, no?
But, again, you’ve got to look beyond the static figures and consider future trends.
In this example, you’d find that the $600 a week in your single family will be extremely difficult to get to $700 a week… especially at a time of uncertainty and high interest rates. Whereas the $300 you’re getting from the duplex could easily be increased to $350 after applying a fresh coat of paint or even just a lease renewal with a new tenant.
That’s why the emphasis shall not solely be on the yield at the time of purchase. Rather, have a holistic view of the property and its location as well.
How to Navigate the Current Property Market
From the rapidly decreasing Days on Market metric to the rise in inter-LGA migration, all the way to variations in yields and median rents in several locations… There are a lot of trends that the mainstream media has been failing to pick up on.
So, if you’re planning to invest in property this 2023, you might want to consider taking a contrarian view from the mainstream to give yourself a better chance at success. Take the time to read beyond the headlines and get into the meat of those numbers.
And remember, always think about where trends are going versus where they are today.