3 Key Statistics Property Investors Need To UnderstandDecember 10 2020
"We are always in search for timely and accurate information, but do we always know what to do with it? Here are some common property statistics can be interpreted to your advantage!" - Ben Crow, Chief Operating Officer
There is a saying that statistics can tell you anything you want them too because our own biases will impact the way that we interpret them.
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Now that doesn’t mean that statistics are therefore meaningless.
Rather, property statistics can help educate investors about what markets are doing at specific points in time.
And that is information that they can use to make informed decisions about locations which might be about to upswing.
So, here are three statistics that property investors must understand.
1. Median house prices
Everyone seems to release median house price measures these days, with some even reporting on a daily basis!
Longer term results such as quarterly or yearly, though, are the timeframes to keep an eye on as they can show price movements that reflect a larger proportion of sales in a particular suburb over time.
Median house prices are a solid indicator of change in a suburb because price variations are often because of a different type of property being sold or buyer being active in that location.
For example, there may be a number of higher priced properties being sold that have been extensively renovated, which has attracted more professionals and is a sign of gentrification.
Conversely, if the median house price falls, it can often be because first homebuyers are buying more affordable homes in the area.
Median house prices are a good measure to understand but you’ll need to undertake more research to get a better picture of what is happening on the ground.
2. Days on market
Days on market is what it sounds like, and is a measurement of the age of a listing.
Clearly, when demand is high and there are more buyers than properties available, the days on market will decrease.
On the other hand, when the market is soft because of economic conditions, perhaps, or because of a flood of new properties becoming available, then days on market will increase, which will drive down prices.
This statistic helps investors to identify those locations that are strengthening so they can buy before the masses and therefore make the most of the price uplift as the time on market decreases.
However, keep in mind that no numbers should be looked at in isolation as property market is a dynamic beast where many factors and influences are at play.
A property can still be investment-grade if all the other metrics are heading in the right direction even though its Days on Market has slightly increased in the past 12 months.
Demographic change is one of the strongest indicators of how a local property market will perform.
It’s really demographics that drives markets, so I suggest investors look for locations undergoing a demographic change with the arrival of new affluent residents, all else being equal, which will lead to increases in the price of property.
In fact, research from the Property Investment Professionals of Australia found that the early signs of gentrification could be identified by:
- A greater decrease than the state average in people aged 18 years and under.
- A greater increase than the state average in couples without children.
- A greater increase than the state average in people that lived at a different address five years ago.
- A greater increase in the percentage of females working in professional occupations.
All of these factors work together to change a suburb because its population generally has more money to spend.
So that means there will be more barista coffee houses, organic cafes as well as wine bars.
It will also mean that property prices will start to rise as these aspirational new residents push up prices because of their desire to live in that location.
Of course, there are more statistics than the ones I’ve mentioned here – including rental yields, vacancy rates, stock on market and vendor discounting – which you should also understand.
Successfully researching property markets involves macro statistics, such as median house prices and time on market, but also micro measures such as demographic changes.
But remember… successful property investing is part science (understanding the data) and part art (having on the ground perspective to interpret the data correctly.)
Perspective comes at a cost – the cost of time, experience and learning from your mistakes.
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Forbes, K. (2020, December 3). 3 statistics property investors must understand. Retrieved from https://propertyupdate.com.au/3-statistics-property-investors-must-understand/