Market Measures To Watch Post-COVID
Nick Viner
The last two months have demonstrated how industries can be dealt a sharp blow by significant events with swift and painful results.
The most obvious candidates at present are retail, hospitality and tourism where the shutting down of operators was a necessary action to avoid an extraordinary health risk.
But in Australia, no industry is an island. Ripples in one section of the nation’s fiscal fabric bring disruption to others.
And so it is with real estate. Not only have we dealt with the ground shifting beneath our feet in relation to open homes, auctions and tenancy legislation, but the flow on downsides of the softer economy will hit us too. Of course, much of this hinges on the proposed end of government assistance come September, and the prospects of a medical solution to the pandemic.
It’s no wonder real estate stakeholders feel uncertain about the future – everyone wants to know when things will take a turn for the better. And the current situation is also providing many opportunities.
I believe there are some trackable numbers that will signal we’re on the right path to recovery. Here’s my list of ‘must watch’ metrics:
Broad macro factors
Eased restrictions: While we do not want to see a spike in infections, even the small steps towards eased restrictions taken so far have elevated the mood and stimulated commerce. Expect that confidence to improve with the recent announcement that there’s unlikely to be further nation-wide shutdowns, with future infection of the controls to be managed at a local level.
Falling unemployment: Consistent growth in employment is an indicator of across-the-board confidence. Business is ready to employ and that means pay cheques will follow.
Re-opening of Borders: Both state-wide and international. The free flow of population allows for trade across a range of industries including tourism and education. Also, given how successful we’ve been in slowing the spread, there could well be an influx of international immigration to our shores once the crisis passes.
Market activity
Crowds: Increasing numbers of people at open homes and auctions are great lead indicators that we’re on the right track. Real estate sales rely on eyes. The more interest a listing garners, the bigger the potential buyer numbers and the stronger market.
Multiple offer situations: When progressively increasing numbers of buyers begin competing for the same property, price rises are sure to follow.
Auction clearance rates: A great measure but only when viewed in conjunction with auction numbers. If there are fewer auction events, but they continue to find buyers, the clearance rate will still look strong. For example, an auction clearance rate of 75 per cent was recorded for NSW for the week ending 16th May based on 151 events. Not a bad result and a far better result than the poor 39.5% achieved on 4 April, 2020 at the start of the crisis.
Property market metrics
Market metrics shouldn’t be viewed in isolation. You need to see a mix of measures move in positive directions to be certain the market is improving.
A combination of the following provide a great bellwether:
Increased transaction numbers: As opposed to listings, you want to see the number of property transactions rising towards pre-crisis levels. Even if values are yet to go up, more transactions means there is more activity from both buyers and sellers. Recent CoreLogic analysis revealed transaction numbers nationwide declined around 40 per cent during April. That said, a recent rise in confidence may result in Sydney’s transaction numbers improving slightly during May.
Increasing rents and yields: A great lead indicator because rising rents result in increasing yields. As yields get ever more attractive, prices will be dragged up by eager buyers. We have entered a period where rents are softening according to SQM Research. Their numbers revealed that For April 2020 across Sydney, rents fell 6.1 per cent for houses and 4.9 per cent for units as compared to 12 months ago.
Rising asking prices/reduced vendor discounting: More buoyant conditions will see sellers asking for higher prices and staying firmer on list price. Yet another sign when confidence replaces uncertainty. At present, house sellers gave an average discount of 5.37 per cent in Sydney according to Domain. This compares favourably to shut downs of other sectors of the economy.
Reduced selling periods: If property isn’t hanging around on the listing portals for as long, it’s a beacon buyers are keen to secure holdings before others get the chance.
Markets are complex. They vary across location, property type and price point, and while the influences of price direction are varied, they aren’t hard to track in specific market segments for seasoned professionals like buyers’ agents.
If you’re keen to get to be a part of the property turnaround, make sure you have an experienced buyer’s agent on your side. Otherwise you risk acting too late and missing out on all the potential gains.
