Leading indicators for property price direction

If you had to rely on one data source to forecast where property prices were heading, which category of information would you use?  Sneaky insight – the overwhelming majority of property buyers would nominate sales prices.

Totally understandable

It’s totally understandable why most buyers would head straight to sales prices as their main predictor.  After all, the media and plenty of commentators talk incessantly about prices and capitalise on the headlines to gain your attention.

Sales prices are interesting to know and definitely should be a factor in buyers’ decision making, but sales are definitely not a leading indicator for property price direction.

You know better?

Okay . .so what’s the absolute best choice?  Population.  Yes . . .there’s other factors to consider, particularly access to funds, economic strength, infrastructure changes and supply of housing appropriate to an area’s needs, but without monitoring population you will miss out on early indicators of market movements.

Successful developers and multi-national retailers (Ikea, McDonalds, Coles etc) know this, and all levels of government (local, state and federal) know this.  Smart developers utilise population changes to plan their projects sometimes 15 years ahead and they’re spending quite a few more millions that you do on your property portfolio.

While governments know to monitor population, things go awry when they fail to act on the information – for example the congestion in our major capitals is due to previous governments’ inaction on building infrastructure in a timely manner.  There’s a concern government is still behind the game – even though most capitals are covered in construction projects.  This has prompted Infrastructure Australia’s recent call for further action . . .because they’ve studied the population projections.

Current status

As property buyers we need to look at area, and ideally, suburb level population changes, but to provide an idea of trends, let’s start at national level.  The graph below tracks Australia’s population since settlement, and the overall trend here is obvious . . .the more people we have, the quicker we’re growing.

All population forecasts include three levels of forecasts and the graph below adopts the same format:

  • Series A (red) – Higher assumptions of fertility, life expectancy and overseas migration flows
  • Series B (purple) – Medium assumptions of fertility, life expectancy and overseas migration flows
  • Series C (green) – Lower assumptions of fertility and overseas migration flows, and a medium assumption of life expectancy.

 

 

The latest available current figures on a state level are listed below – note these are published annually.

 

Projected population figures by state are shown in the table below, including the three main data sets of high, medium and low projections.

 

 

According to the tables above, Australia’s population is projected to reach 30 million people by 2029.  Anthony Grubb, Director of Demography at the ABS, said: “The projected time for the nation to grow by 5 million people on current indications will be similar, if not a little shorter, than the 14 years it took to grow from 20 million to 25 million.”

So . .what’s your point?

The point is, a growing population needs housing to grow with it.  We currently have approximately 10,000,000 residences (according to CoreLogic) that 25,000,000 of us live in right now.  On average, we build approximately 150,000 residences per year Australia-wide . . and that’s not enough to accommodate a population that is growing at approximately 500,000 people per year.

The other key point is that the majority of our existing residences are located close to established infrastructure, therefore the majority of new properties will need to fan out past current suburb boundaries.  That is, unless the State planners allow existing properties to be developed to introduce more dwellings in established suburbs.

Things become tighter when property types are considered, as there’s no point building thousands of apartments if people are too scared to live in them.  The housing mix (houses v units) is currently skewing suburb sales performance data, masking the rapid bounce for quality properties while apartments languish on the market – yet another reason why sales history is not a reliable decision making source.

Insight

Looking at population this way demonstrates the heat underlying property price pressure, as more people compete for fewer properties now and into the future.  Remember, sales history is just a record of what has happened in the past but to find opportunities, buyers need to review data sets that provide insights into what will happen next.

 

Buy smarter = limitless ways to build lifetime income

Crave Property Advisory is a unique property strategy and buyers agent service. As the only independent and unbiased advisory that can help you use any property strategy Australia-wide, Crave’s services extend to home, investment and commercial property.  A highly client focused organization, Crave developed the Modular Investing System (MI System) to provide clients with the ability to use a tailored mix of strategies and efficiently build profitable portfolios that create lifetime income. 

Debra Beck-Mewing is the CEO of Crave Property Advisory, and has more than 20 years’ experience in property investing, Australia-wide. She has used a range of strategies to build her property portfolio including renovating, granny flats, sub-division and development. Debra is skilled in identifying development opportunities, and sourcing properties that have multiple uses and multiple exit strategies. She is a Qualified Property Investment Advisor, licensed real estate agent and also holds a Bachelor of Commerce and Master of Business.

Follow us on facebook.com/CravePropertyAdvisory for regular updates, or book in for a strategy session to discuss your property questions.

Disclaimer – This information is of a general nature only and does not constitute professional advice.  We strongly recommend you seek your own professional advice in relation to your particular circumstances.

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