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Timing the Market vs. Time in the Market: Why not Get Both

We all know that time in the market is more important than timing the market. However, tightening your acquisition window doesn't mean sacrificing your short-term growth. In this blog, we’ll show you the possibility of timing the market while maximising your time in the market.

Timing the Market vs. Time in the Market: Why not Get Both

We all know that property investing is a long-term game.

A general rule is that the longer you hold your portfolio, the better growth you achieve. In one of your previous blogs (Finding Good Buying Times vs. Tight Acquisition Windows), we discussed the importance of time in the market over timing the market. 

However, tightening your acquisition window doesn’t mean sacrificing your short-term growth. In this blog, we’ll show you the possibility of timing the market while maximising your time in the market.

Australia is a market comprising many micro markets that don’t necessarily move in the same cycle. That is why great performers and poor performers always coexist.

Let’s taking SA3 regions as an example. Australia has in total 358 SA3 regions, among which 330 have consistent property market data for the past 10 years. The chart below shows the number of SA3s achieving double-digit growth each year in the decade (for 2021 and 2022, we have lifted the growth rate criteria from 10%+ to 20%+ as few regions didn’t achieve 10%+ growth during the COVID property boom).

Image of 6418f0c90a672f84b7101108 1.%20double%20digit%20growth%2010%20year.

In the last decade, we typically see 50+ regions performing exceptionally well each year (with 10% annual growth). Even in 2018 and 2019, which are believed to be the Australian property markets’ downturn period, we find close to 20 vigorous growers each year. The table below lists some of the best performers in 2018-19 and their short-term and long-term growth rates.

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Fast-growing markets are available anytime; you only need to identify them. 

How? By examining their market pressure through indicators such as: 

• Sales Market Demand and Supply

Growth happens when demand is stronger than supply. One of the best measurements of the demand/supply relationship is inventory, which indicates how many months it takes to sell out the current stock on market without new listings.

Image of 6418f0eeac750c5045abfeee 3.%20Inventory

The lower inventory, the tighter supply, and the more likely robust growth would happen. The NSW region Wyong’s performance in the past 2 years clearly illustrates the correlation between inventory and price growth (chart below).

Image of 6420e20de0a35ddf1db3734b Wyong%20Inventory

        – Feb 2021 to Feb 2022: As inventory declines fast to below 3 and stayed low, house price growth rate increases steadily.

        – Feb 2022 to Jan 2023: As inventory goes up, the house price growth slows down significantly.

• Rental Market Demand and Supply

While the demand and supply don’t have a clear correlation with sales price growth (eg. The WA region Armadale’s vacancy rates have been at a crisis level in the past 2 years, but its house price only grew by 1.4% over the last year), a hot market amongst the other buzzing indicators should have a hot rental market too. That way there is no speculation in its prospects of growth, considering low rental vacancy displays a genuinely undersupplied amount of shelter.

Vacancy rate is a major indicator of rental market demand and supply. The Victorian city of Bendigo provides an example of price growth following declining vacancy rate.

Bendigo’s rental vacancy rate rose in the first half of the 2010s and started dropping in 2015. It reached the high-pressure benchmark of 2% in mid-2018 and has stayed there since (chart below).

Looking at the city’s house price growth trend, you will notice that the price didn’t achieve impressive growth when vacancy rates were high, especially from 2015 to 2018. The growth only picked up speed in 2019 when vacancy rate stayed low.

Image of 6418f196d9f7dd7ea567452e 5.%20Bendigo%20Vacancy

Bendigo’s decline in rental vacancy rate was because of many reasons. One significant contributor is the improvement in employment led by the redeveloped Bendigo Hospital.

The $630m new Bendigo Hospital was the largest regional infrastructure development in Victoria’s history. It opened its first stage in early 2017 and fully opened in late 2018. 

Its influence on the local economy started from the construction phase – At the peak of construction, 1000 workers were on site, lowering the local unemployment rate. 

In operation, the new hospital provides more jobs than before and supports more local businesses around it: 6.9% of all workers in Bendigo were employed by hospitals before the new hospital opened (2016 Census); In 2021, 3 years after its full opening, 8.2% of all workers were employed by hospitals and another 3.3% worked on other social assistance service jobs – much higher than 5 years ago.

It’s also worth noting that the opening time of the new hospital also correlates with the city’s vacancy rate trend (chart below).

Image of 6418f1bc3e0b6a2fd90b9e1a 6.%20Bendigo%20Hospital%20vs%20Vacancy

• Economic Conditions (Unemployment Rates)

We can also get hints about a location’s property market trend by checking its economic conditions as well. Strong/strengthening economies tend to create higher demand in both sales and rental markets, leading to thriving property markets.

Townsville is an example.

Image of 6418f1e7a62702845291d278 7.%20Townsville%20Unemployment%20Rate

Townsville’s economy experienced an extended weak period in the 2010s, indicated by the lifted unemployment rates (above chart). The economic recovery began in 2016 when the unemployment rate peaked and picked up speed in 2019.

The property market was quite suppressed during the high-unemployment period, experiencing a price decline lasting for 5 years (2014-2018). Only when the unemployment rate started dropping fast did the property market regain growth momentum, and the faster the unemployment rate dropped, the higher the house price growth rate achieved.

Inventory, rental vacancy rate, and unemployment rate are some of the indicators that help you identify high-pressure markets to ensure healthy short-term growth. There are, of course, many more indicators to be considered in your market analysis, for example, stock on market relative to total house stock, building approval numbers and trends, infrastructure projects pipeline, people movement trends, and more. All these factors need to be examined together to reach the best decision.

It can be extremely time-consuming for an individual to do so. That’s why data-driven buyers’ agents like InvestorKit are here to help! Our research team monitors the economic, demographic, and property market trends across the country to identify the best location to suit your portfolio-building needs. Want to free yourself from the tedious data-searching & analysing work while achieving better results? Talk to us today by clicking here and requesting your 45-min FREE no-obligation consultation!

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