How Easily Can We Predict Property Prices?

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In recent months, the housing market has improved with property prices slightly increasing across the country. Property prices in Sydney have grown 3% since the January trough according to CoreLogic. Given the interest rate rises and earlier media predictions of doom and gloom, this statistic may seem surprising in itself.

Now with “green shoots” hinting at a recovery, we have analysed the performance of individual suburbs to determine if there are clear cut factors that will reliably predict short term property price movements.

We researched suburbs in Sydney’s Inner West where house prices grew the fastest in the last 3 months using CoreLogic’s Mapping The Market tool. Here are the top 5 suburbs where house prices have been growing in value the most:

Suburb 3 Month Value Change – Houses
Croydon 9.4%
Dulwich Hill 8.8%
Lewisham 8.5%
Croydon Park 8.4%
Ashfield 6%

It is interesting to ask is why these suburbs are growing in value the most. We have selected 3 of the most important trends that influence the property market to determine if there are clear metrics to explain the short-term market movements and why these suburbs might be leading the price increases in the Inner West:

Affordability

The relationship between household incomes, availability of credit and median property prices all contribute to buyer affordability. In the 2021 boom, property prices were outpacing buyers’ ability to afford certain property. Effectively, buyers were priced out of their dream locations.  The natural question to ask is, are the fastest growing suburbs the most affordable suburbs? Is demand a reflection of affordability in the Inner West?

Reviewing the 3 monthly changes in property prices across the Inner West, affordability does not provide us with an explanation to the price increases. For example, Croydon has one of the highest median house prices in the Inner West yet is also experiencing the highest rate of growth. While affordability can influence market changes, increasing house prices across the Inner West in the short term can not be explained by affordability alone.

Stock on Market

There is a severe lack of properties available to buy across the country. When we consider the fastest growing suburbs in the Inner West in recent months however, the lack of supply is no more severe than in any of their neighbouring suburbs. This suggests that there is not a strong relationship between the top performing suburbs in the Inner West of the last 3 months and the supply shortage.

The effects of a downturn  

In the current and previous downturns and upswings, properties in the upper quartile have led the increase and decline in property prices as CoreLogic suggests. If we apply this trend at a local level, to the Inner West, it suggests that suburbs such as Haberfield, Glebe, Five Dock, Balmain and Birchgrove would be leaders in the price movements. But this isn’t the case based on the most recent 3 monthly data. Balmain for example, which fell by 12.6% in the previous 12 months, only grew by 2.9% in the previous 3 months. Contrast this to Croydon Park for example, which fell by 8.5% in the previous 12 months and grew by 8.4% in the previous 3 months.

This exercise reinforces that it is extremely difficult and risky to rely upon any specific metric to predict which suburbs will perform and which won’t. In fact, it is a reminder that examining short-term metrics can be unreliable. Looking at data over a longer period may reveal more accurate and established trends.

When analysing data, it is easy to get bogged down in the detail and forget that buying and selling property can be an emotional experience and not every suburb, street or property will perform according to general market trends. Data will not predict human behaviour on individual property transactions and as a buyer, you are purchasing a single property, not an index. It is important for buyers to do their own homework and then be active in the market once they are ready.

Buyers need to consider their own personal requirements and goals of home ownership or property investment and investigate the local market they are buying into. This means doing weeks of ground research such as attending inspections, attending auctions and talking to a range of real estate agents in your target areas. Going through this exercise will allow you to form a well-rounded understanding of the local property market.

If you don’t have the time or the experience buying property, talk to a professional to help you through the process. Contact Nick Viner on 0405 134 645.

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