SO WHAT DRIVES PRICE GROWTH?

Oct 24, 2017
Michael Matusik

Much, these days, is written about price growth, and to some extent, about rents.  A lot of it looks backwards, telling us about past performance.  Most of it is nonsense.  Less is said about future trends.

And if the future is promoted, it is almost always thrown out there with little or no reasoning as to why.

A few mention supply.  Almost no one (present company excepted) talks about sales volumes.

So what drives price growth?

Dwelling prices are driven on three levels – macro; regional and local.

On the macro level, price is influenced by the wider things – interest rates; liquidity; the economy; wages; confidence; government policy; exchange rates and overseas events.

Regionally, dwelling prices are influenced by employment; wages, again, and the broader demand/supply balance.  We reluctantly include ‘infrastructure’, as our work has found that unless these new structures create long lasting jobs, set enduring higher wages and really increase convenience, then it’s a real hit and miss when it comes to an enduring impact on local property values.

And locally – where it really matters – it is all about supply for sale versus demand i.e. sales. 

Many spend way too much time on the macro stuff; others wallow around – aimlessly sometimes, I must add – at the regional level and too few get down and dirty, visiting the local scene and making sure the data/results pass the ‘pub test’.

Supply in months

How we measure supply and demand at a local level is to count the amount of stock currently for sale against the number of sales made over the last twelve months.  We express this as the ‘supply in months’.  And no surprise there, but the supply is often much more and the demand a lot less, than the empty vessels would have you believe.

In short, an area with, say, 100 properties listed for sale, but only achieving 20 sales per annum, is in a slump.  If we exchange the numbers, then it’s thriving.

As one would expect, when supply is tight, dwelling prices and rents lift.  The opposite applies, almost always, when supply is high in relation to demand.

And now we come to this week’s pitch. 

Our new Price + Rent Reports outline where we think prices and rents are likely to rise, remain stable or fall across each suburb/postcode in the region in question.  This commentary is based around local supply (properties actually listed for sale or rent), versus the demand (authentic sales or leases) of similar property.

We know it works.  We have tested it over the past ten years or so and found it to be a very reliable bellwether.

So check out our promotion below.  Click on the image to buy!  Don’t be shy – at $27.50 per report – so little for so much!

Until next time,

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Michael Matusik

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