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Led by Sydney, many Australian cities are seeing a property market downturn.
Banks, economists, property experts, and investors are all making predictions on when those markets will bounce.
Instead of telling you when we think the markets will recover, InvestorKit team is going to share with you how to tell when the recover will happen, with three cities as examples – Sydney NSW, Brisbane QLD, and Burnie TAS.
Greater Sydney – House price growth curve was relatively flat from 2010 to 2012 and started surging in 2013 (below chart).
Greater Brisbane – House price growth was much slower in the 2010s than in the previous decade until it picked up speed in late 2020 (below chart). InvestorKit entered the market in 2019 and helped our clients enjoy the whole growth phase of Brisbane.
Burnie – House prices didn’t achieve much growth in the 2010s until 2018 (below chart). InvestorKit entered the market in 2017 and achieved circa 90% growth in our clients’ asset value in 5 years.
In today’s blog, you will see 4 signs convincing us that the above markets were about to pick up their growth speed, so we entered in time. These signs are:
– Healthy / improving local economy
– Tightening supply-demand relationship
– Low or lowering rental vacancy rate
Healthy / improving local economy
Local economy is essential to housing market activity. Unemployment rate is one of the major indicators of economic activity. High unemployment rate usually means inactive economy, where housing demand is low, and prices wouldn’t grow fast; On the contrary, low / declining unemployment rate indicates thriving / improving economy, which tends to lead to higher housing demand and price growth.
• Greater Sydney’s unemployment rate had hovered at a low level for quite a few years before the 2013 bouncing, indicating a robust economy, underpinning the city’s high housing demand.
• Greater Brisbane’s unemployment rate had been trending up since 2008 and only started dropping in 2020, in line with the thriving economy that COVID didn’t severely impact. The flourishing economy ensured the high purchasing power of the locals, boosting the 2020 property boom.
• Burnie’s unemployment rate decreased from 9.7% in 2014 to 6.4% in 2017 and remained low for a few years. If the other indicators also look good, which we will discuss later, the unemployment drop should be able to lead to rising housing demand and price growth in a couple of years.
Tightening supply-demand relationship
The relationship between demand and supply is key to price growth. When a market has high/increasing housing demand but low/decreasing level of supply (both established and incoming supply), it’s not far from fast growth if not growing already.
Established supply
The below charts show the relationship between sales volume(demand) and number of for-sale listings (supply) in the three cities overtime.
• Greater Sydney’s house supply (number of listings) started declining 2 years before the 2013 bounce, while the level of demand (sales volume) started increasing at around the same time.
• Greater Brisbane’s house supply level started declining sharply a year before the 2020 bounce, lifting market pressure on the supply side and getting the market ready for a surge when demand started growing in 2020.
• Burnie’s house supply level started decreasing steadily in 2017 (a year before the bounce) while demand was increasing. The decline lasted for 5 years, adding more and more pressure to the market, which led to robust price growth in the house market.
Incoming supply
When we talk about housing supply, we don’t just talk about for-sale established houses, but also new builds. The below charts show how the number of new house building approvals changes over time in the three cities. It may seem that the number of building approvals moves in line with house prices, which is understandable as high prices attract developers. However, price bounce and significant growth always follow low or lowering number of building approvals.
• Greater Sydney’s building approval numbers were relatively low before its 2013 bounce and surged as house prices grew. The 2016 and 2019 building approval declines were also followed by price jumps.
• Greater Brisbane’s building approval numbers declined for 2 consecutive years before the 2020 price bounce.
• Burnie doesn’t have many houses thus the small numbers of building approvals, yet in 2017 the figure dropped by more than two thirds, contributing to further tighten the supply-demand relationship and pushing prices up.
Low or lowering vacancy rate
Rental market pressure is a leading indicator of sales market growth, as a large portion of rental demand will eventually be converted into purchase demand. We see a tight rental market in all three cities before their prices bounce.
• Sydney’s rental vacancy rate dropped from 2%+ to around 1.6% in 2010 and stayed below 2% until 2017. The lowered vacancy rate indicated high pressure in the rental market, which was passed on to the sales market a couple of years later.
• Brisbane’s rental vacancy rate has been largely trending up since the 2006 rental crisis and started a sharp decline in 2017. The steep drop is in line with the increasing internal migration trend clearly shows rising housing demand in Brisbane.
• Burnie’s rental vacancy rate has been trending down since around 2016 and dropped to a low level of below 2% in 2017. The constantly lowering vacancy rate tells a lot about the city’s accumulating market pressure since 2016.
Healthy or improving local economy, tightening supply-demand relationship, and low or lowering rental vacancy rate – If you see these three trends happening in one market, it is ready to go back to growth.
It’s worth mentioning that the indicators must be considered together. Growth won’t happen if economy is thriving but supply is too high, or when supply is tight but there’s no healthy economy to support housing demand.
In the end, it’s all about demand and supply. All you need to do is to grab the economic and property market data and check for high/increasing demand with low/decreasing supply.
InvestorKit is a buyers agency that loves exploring and interpreting data to spot markets with growth potential and help our clients make the most of their money invested. Want to work with us and buy in the next Brisbane or Burnie? Talk to us today by clicking here and requesting your 45-min FREE no-obligation consultation!