- Media outlets love to report on all the latest property statistics, but what do they mean?
- A key to understanding the property market is supply and demand, and various statistics
With the housing market heating up in recent months, media outlets have been all over the latest data and statistical charts.
Property research houses such as SQM Research and CoreLogic have continued to pump out data on the housing market regarding a multitude of indicators: median house prices, auction clearance rates, vacancy rates, weeks on market, etc.
Often, it can be overwhelming to sift through the many statistics on the housing market, especially for those not well versed with basic data analysis (or numbers more generally).
Supply and Demand basics
The first fundamental principle to understand about the housing market is basic supply and demand theory.
Supply (willingness to sell) and demand (willingness to buy) are the first two concepts taught in Economics. Understanding how the two interact is crucial to understanding housing price fluctuations.
When the demand for housing exceeds the increase in supply, dwelling prices tend to rise. This is a key observation in the current housing boom: the demand coming from owner-occupiers and more recently, investors, has outpaced the supply of new housing being built and available stock for sale on the market.
Hence prices are rising.
Similarly, as the availability of rental accommodation is scarce right now (supply low), while there are plenty of people looking to rent (demand high), then rents go up.
Auction Clearance Rate
The auction clearance rate is defined as the number of properties that sell via auction as a percentage of the overall number of properties that go on auction.
For example, if there were 20 properties for sale on auction in a particular week, and 15 of those properties were sold, the auction clearance rate would be:
(15/20) x 100 = 75%
Auctions are particularly interesting, as there is only one property up for an auction at one moment in time (the actual ‘Auction’), with willing buyers all vying to buy it (or not). It’s a unique market of one individual property, and transaction. When the hammer falls, a deposit is due, and the sale is done.
A high auction clearance rate – in a city or across the country – tends to suggest high demand and limited supply. When there are ‘not enough’ houses for auction, buyers will bid up the price so there is a higher chance the seller will get the price they want. This increases the rate of auction sales and hence increases the auction clearance rate.
Recent auction clearance rates reflect the high demand for housing in Australia.
The vacancy rate is the percentage of rental properties that are unoccupied by a tenant at a given time in a given area.
For example, if there are 100 rental properties in a given suburb, and 2 of them are without tenants, the vacancy rate would be:
(2/100) x 100 = 2%
A low vacancy rate indicates relatively high demand for rentals as compared to supply. When the number of unoccupied properties (vacant rentals) is low, the easier it will be for landlords to find tenants and fill them.
It is also an indicator of higher capital growth, as low vacancy rates attract investors.
Days on Market
‘Days on market’ refers to the number of days it takes for a property to sell after it has been first advertised.
A small number of days on market indicates strong demand exceeding supply and a booming market. When properties sell quickly (low days on market), it means they are being snapped up quickly by eager buyers through intense competition. The seller is able to get the price they want without having to negotiate with a willing buyer for long periods of time.
The vendor discount is the difference between the price a property was originally advertised for sale and the final selling price.
A lower vendor discount indicates the vendor did not need to discount their asking price as much, indicating higher demand outpacing supply. Low discounting rates is another sign of a rising market, whereas high discounting means sellers are having to cut their original selling prices to make the sale.
This is a non-exhaustive list. There are many other statistics that can be analysed, such as total search volume, average views per listing (for particular real estate portals) and developer enquiries