Metrics/Data required to Determine Capital Growth

Hello my fellow property investors, how do you do? Just want to find out what metrics or data do you look at to determine which markets are hot or booming currently, or about to boom. Do you look at the following:

1) Days on market
2) Inventory levels
3) Stock on market
4) Vendor discount

5) Median Value
6) Gross rental yield
7) Numbers sold

The first 4 should exhibit a decreasing trend and the last 3 should exhibit an increasing trend to indicate that a market is its growth phase. What are your thoughts?

Also, where do you get this info from? I know you can get the info from CoreLogic, but I can't look at every single market to determine the trends for the above metrics, so I usually go onto this website called DSR; which I have to pay for and trust me, it's not cheap! Just wanted to know if these are factors you look at to determine a growing market, and where do you find the date for each market.

 

For Sydney I use the dart board method. Put a bunch of suburbs on a dart board, throw the dart and by the time it lands they have all gone up 20%

 

That approach is great my friend, but there is still opportunity cost lost when you randomly select a suburb out of a pack of suburbs that are all growing. You rather invest in a market that is growing at 10% instead of 8% which is also great growth.

Right now, almost all the markets are growing, but once the market/lending conditions change, then you will see which market have held onto the growth and continue growing. “A rising tide lifts all ships”.

 

Actually, i prefer to buy when 1, 2, 3, 4 are rising and 5 is falling. If the fundamentals are there, better to buy when markets are down.

 

Great points, but I wouldn't rule out buying in a ripple suburb at a discount. If you can get something below market value, that's immediate growth.

 

So you rather buy in a falling market than a rising market?
And by “fundamentals”, what exactly did you mean?

 

Best buys have been flat or down markets. More choice, easier negotiation, more time to decide. Buy when it looked like it would fall further. It doesnt always work. Perth has been disappointing for a while. But then so was sydney in the 2000s.

but, waiting has other risks when its your first one.

Simple fundamentals like population growth, established areas, old properties, with land if you can.

 

This is the best way to assess demand vs supply for any area, houses vs units. But it is subscription based.

It is a composite of all of the factors you mention above, in a single traffic light score.

DSR data - scoring supply and demand

Domain has "demand" ratings for suburbs (cool, hot, very hot etc), but it doesn't assess demand against supply. One thing that I think was lost during the Sydney lockdowns, is that demand did drop - but supply dropped more sharply. So you could have low demand and even lower supply and see prices rise. Which is why the DSR is superior.

 

Isn’t population growth an indicator of supply and not demand? There are many suburbs where population has been falling, yet growing .

 

True. I have actually been on DSR as a premium member for that last 6 months, and I tell you it’s so expensive!!!! $220 per month! I don’t plan on staying on this plan forever, will come off it after my property acquisition phase finishes.

Have you actually got good results from using DSR? I ended up using it to purchase my IP in Hallett Cove last month. It was in the 1st percentile for DSR+ scores - 79. I will continue using it, but won’t solely rely on it.

 

population growth of the city or country, not a suburb. What happens when sydney and melbourne hit 8, 10 million people each? Old houses and small unit blocks get redeveloped, or rebuilt. Focus on old houses and units in small blocks (old brick,max three levels) near transport.

I dont look that micro. Work more on buying when things are bad and structuring right. I dont worry about finding the ‘best’ investment, just a good one and use time. Keep it simple. Seems to work.

 

Growth of the city or country? At a city level, Adelaide and Hobart have had very little population growth in recent years, yet they are one of the best performing capital city markets in terms of capital growth. At a country level, net migration into Aus is negative now, yet the majority of markets in Australia are growing. What I am trying to say is that population growth is not an indicator of capital growth. It’s more of an indication of the supply side of the Demand/Supply equation.

One such article that explains this: Avoid high population growth suburbs - Select Residential Property

 

Note that if a suburb is in a capital growth phase, likely that 6. Rental yield is falling / compressing. When in a capital growth phase rental price often does not increase as fast as purchase prices.

Rental yield can sometimes be a precursor to capital growth however as renters move in as priced out of more expensive suburbs, then both O/O and investors follow (both the ripple effect of more exxy inner ring suburbs pushing buyers to the next suburb and also the increased rents).

 

Good point. So if I look for markets where the rental yields are falling, then does that suggest capital growth always? What if the yields are falling because the place is becoming unpopular and the rent are actually decreasing, but the median value remains the same?

 

If you can find data on rental yields, then you can find data on weekly rental price/asking price. That will let you know what's driving the drop in yield.