How are our property markets doing?
With so many indicators regularly mentioned in the media – which should you rely on?
Firstly, it’s worth understanding some statistics are lagging indicators – they tell you what has happened in the past.
Others are leading indicators – they are a sign of what’s ahead.
Here’s what I mean:
- The commonly quoted “Median home prices” are a lagging indicator, they tell us what’s already happened. Property sales form 30, 60 or even 90 days ago.
- Economic Fundamentals are leading indicators – and that’s what our research team at Metropole rely on to find future growth areas.
- Days-on-market is a market trend indicator.
Clearly there are many other statistics that keep getting reported.
Things like auction clearance rates, immigration numbers, new dwelling construction, infrastructure spending and so on.
But one statistic that is not often mentioned, yet which I’ve found a useful an indicator of where each of our housing are at, is Days On Market (DOM).
And more importantly, the trend in DOM tells us where our property markets are heading.
DOM is calculated by the average number of days that properties within a particular category (apartments, houses, villa units etc) are advertised for sale and I’ve found the trend of DOM is key indicator of whether we’re in a buyer’s or seller’s market as it is a serves as a marker of the relationship between supply and demand.
Think about it…
If the property market in a particular suburb is hot, properties will be snapped up quickly by eager buyers and DOM will be low – often less than 30 days.
In fact, that’s the way one of the trends we’re currently seeing in many Sydney and Melbourne suburbs at the moment.
However, just go back a year or so, when there were more properties for sale than there are active buyers and properties were languishing on the market, DOM blew out to over 50 days in many locations.
Understandably increased DOM is usually followed by vendors discounting the prices of their properties to achieve a sale and that’s why I believe it’s an indicator which astute property buyers should follow to determine the future property price trends in a suburb.
On the other hand when the market turns and buyers return, DOM starts to fall as turnover of properties picks up. And this happens before prices start to rise.
Can you now see why DOM trends is an important market statistic to keep track of?
Where do you find these stats?
You’ll find all the big property portals and Real Estate Institutes report average Days on Market for each suburb and then more specifically for different property types, such as 3 bedroom homes, 4 bedroom homes and 2 bedroom apartments.
Now there’s no right or wrong number for DOM and apart for the supply and demand ratio, it also depends a lot on market depth.
In suburbs where few transactions occur, for example small regional towns, you’d expect DOM to be higher than popular suburbs where there are more buyers chasing their next home.
And of course, the time of year can affect DOM.
Just like auction clearance rates can fluctuate based on the seasonal highs and lows, the same is true for days on market, which often blow out around Christmas time and over the summer holidays.
But as they say…there’s more
Clearly there are many other factors to take into account when researching property markets, starting with the big picture macro-economic factors such as the state of the economy, population growth, jobs growth consumer confidence and finance trends.
Then one needs to drill down to regional factors and then local factors such as supply and demand.
As with the price of almost everything, supply and demand have a huge role to play in the property prices.
And Days on Market is an oft forgotten indicator of supply and demand.
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