3 Key Traits of a Booming Property Market | Property Nerds Podcast

This is a Momentum Media production. Nerd alert! Property nerds. The home for data-driven property investors. Where we uncover Australia's hot and cold markets, latest headlines and trends.

Hey everyone, this is Arjun here from InvestorKit Buyers Agency. Buyers Agency of the Year for 2024 and 2023. I think I'm spamming that a little bit of late. We're super proud of the team, so apologies if you've heard me say that a couple of times, but I'm just absolutely pumped with what the team's doing. We're getting some killer results for clients, so yeah, I'm just proud.

Just proud and excited to share that, so definitely not my own horn. I promise you it's not for me, it's for the greater team, just to make sure they're getting their roses. But I'm here with Jack from Fouracre Financial. Jack, how are things, mate? Yeah, good, good.

Thanks for having me, mate. Always good. Mate, your last few episodes, you've been a star. People loving the SMSF tips, people loving interest rate thoughts, things like that. This is truly the game of finance, isn't it?

I thought property was the sexy part, but you've taken over. Yes, yes, I've been saying it for a long time, mate. My calendar's getting booked out, but it is true. It is a game of finance. Most people out there are playing the game of property, but yeah, it's a game of finance.

Absolutely, mate, absolutely. Well, today's a bit of a game of property day, because I feel like the love's definitely been on the finance corner the last couple of ones, which it should be. It should be a two-to-one ratio, two your way, one my way, but here's the one where we're talking about research and markets, and in particular, the questions I've been getting is, Arjun, when are markets truly booming? Obviously, price going up is one thing, but what are the trends you see? So I'm keen to jump into that today.

Yeah, so you shared with me one of the research papers that InvestorKit put out, three key traits of a booming property market in Australia. So let's go through the first one, then. Yes, so the first one is time on market, right? And this is a stat that we use in data called days on market, or for super data nerds, we call it DOM, D-O-M, Agent DOM, sounds pretty cool. But with DOM, what we notice is that there's two key things to look at.

Firstly, how much is it? How quickly are places selling? And the second one is how fast are places selling? And I think that's that common logic or common sense coming in to go, you can't expect a boom if everything's taking longer to sell, but if everything's taking faster to sell, it just means less decision time, it means more FOMO, it means sellers getting what they want because they're happy to pull the trigger and sign contracts, it means agents coming up to next people's vendor presentations and saying to them, hey, look, that place sold in three days, and suddenly it makes you feel more confident. So it's like everything in one, it's like vendor confidence increasing, it's vendor prices increasing, it's buyers getting FOMO, it's buyers missing out, getting frustrated, wanting to do more, and all of that originated from this one trend, which is days on market getting low.

Yeah, so I guess when you're looking at all the different markets and you would see, do you work it on a quarterly basis or is it like a monthly basis? Like you'd see, oh, the average is 20 days on market and in the last three months, it's now gone down to 18. Like, how do you look at it? Good point, good point. So we look at a few different trends.

Firstly, where is it today? Then we'll look at one year change, then we'll look at three year, five year, seven and 10. There's one, three, five, seven, 10. It's like this time space where you get to zoom out and zoom in because it might be really exciting or really scary if the area says increased days on market by 10% in the last year. But then you might look at it and scroll out and it's like, this is still 50% lower than five years ago.

Why are we stressing? So if you can keep looking at it in today, trend of one, three, five, seven, 10, and you can make a picture and make an assumption of where things are up or where they're headed. And usually it's like, if it's lower than its last five year averages by a fair bit, it's a usual common trend to say this is super hot. But with days on market, it's a fast moving indicator. It's not something that takes time to change.

When it starts changing, it changes. So you want to make sure you look at that quickly because that means something's happening. But secondly, there's a hack that we do that pretty much no one as in like a non-researcher would do. And we overlay trend lines. And so what it is, is there's a 12 month rolling trend, which takes the last 12 months of averages and then pulls them together.

And that's a slow moving curve. It's cleaner data because if you're saying this month property is selling twice as fast, you won't see that show up for another 11 months on the data. And the reason why is that because if it's fast this month, yes, you'll see the current number change, but that current number is on a 12 month rolling. So it means it takes 12 months of averages of data and your one month crazy heat in the market only represents one 12th of that data. So it's like 11 data points up here, one data points up here.

It doesn't mean the curve falls instantly. It takes time to catch up in it. And if it keeps doing that each month, then it's like two months of the 12, three months of the 12. So that's the downside of you're looking at it from like just a public data available. We do something called 90 day rolling and overlay the curve with 12 months rolling.

And so the fancy thing that does is you see a 12 month line getting faster, but the 90 days breaking first. And so if you see, you know, this is getting all fancy. You really are a property nerd. Yeah, yeah. The smile on your face right now.

It's like the actual trend hacking, right? You get to see trends before. Obviously you can't do them in really small statistical areas. If you look at them at large data sets, you get more clean data. But the idea is if you can see that 90 day trend line really moving rapidly, might move in zigzags because it's 90 day trends, but then you see it really breaking the line of the 12 month, something's happening.

It's getting faster. So with the days on market, is it directly linked to rents, like the rental market as well? Rental markets are different, but there is something called rental days on market. It's the speed to sort of get a place tenanted. But I might jump into the rent trends next.

That's the second area to talk to because that is the second key trait. But before I do, I want to shout out a couple of cities. In Sydney, if you look at days on market trends, firstly in 2012, I know again, the number, ignore the number, look at the trend. It was about 90 days on market based on, you know, domains data. And when it was at 90 days on market in 2012, in 2015, it dropped down to 37.

So that like, it's three times as fast now. And guess what happens during that time for prices? Median prices for Sydney houses was just under 600,000 in 2012. And in 2015, it's now the 800,000. So massive gains there.

In fact, it got to a peak of just over 1. 1 million or just under 1. 1 million in 2017. But what's interesting here is that if you looked at 2015 data of days on market and you started looking at the trend in the short term only, and it increased from 15 to 16, you would have looked at 15 and maybe it's increasing and gone, I won't buy a property there. But actually in 15 to 17, you gained 200,000.

And the key there is to look at it, go, yes, it increased in days on market, but it was still three times quicker than five years ago. So it's always about looking at those different trends. And then guess what? Sydney goes through its slowest period and actually declines in prices. And we see 2017 days on market was at 38 and that rises up to 80 days on market.

And so it's like near doubled. And with the double in days on market, guess what happens with prices? 2017, just over one mil median, drops down to 900K. So 10% right off that in 2019. And then COVID happens and the boom happens in Sydney for that first year or in a bit year or two before interest rates come up and days on market falls down to its lowest as the prices go up too.

So that's Sydney. And it's not just Sydney, this happens everywhere. Go to Hobart, Hobart days on market fell off a mountain, like absolute cliff dive. In 2015, Hobart's days on market was 120. And in 2018, the days on market was one of the lowest it's been, the second lowest, it was at 35.

So four times faster between that 15 to 18. But the good news By getting in that first half of that nosedive, at least you're confident that it's nosedive, because at that point, days on market was now 65 versus the 130 before. And so now all of a sudden, the years after the median price moves from 400k in 2017, and at 2022, it reaches a peak of 750. Massive. So those are two examples.

I feel generous today. I might give one more example, but I'll make this a quick one. Definitely Townsville. Townsville's been crazy. So Townsville's days on market from 2014 was 124.

It went up to 2020, which is going bad, so going up to about 140. But straight after 2020, we see the signs, and days on market drops from 145 down to it's now the lowest it's ever been in 15 years of data collection. And in that 15 years, it's now at 55. So that's triple the speed. So crazy.

That's crazy, right? But rents. You asked about rents. Vacancy rates, mate. That's an interesting one.

And the point here is that booms don't happen just because of vacancy rates being tight. It's like vacancy rates cement that a boom can happen here because it's not just the price market, it's the rent market that's tight too. And I always say this, that rent demand is real demand, because if you've got just prices pumping and no one wants to live in the area and actually rent a property, it's like, where's this all money coming from? But if you've got rental demand that's really tight there and booming, it means that it's like, okay, people want to live here. There's not much accommodation.

People are trying to get in. And so that's what happened here. But what was the most surprising to you out of these cities with the vacancy rates? What did you find was like, wow, you didn't expect that? I mean, the hot one is Perth, mate.

That's crazy, hey? Vacancy rates there at Perth sky up from 2014 to 2017. Genuine bust in that market during that time. Vacancy rates were at 2. 7, went all the way up to 5.

1. All those FIFO homes and everyone renting, all of them gone. But as you said, mate, Perth's trends were mental. It went from a 5. 5 vacancy rate peak at 2017 and got down to 0.

6% in 2023. Crazy tight. And you can see in the lowest points of vacancy when they're ranging between 0. 6 to 1. 5, Perth had its largest gains.

Those booms were not occurring in a vacancy environment of 2. 3 to 5. 5. So definitely something there. So yeah, that's trend number two in terms of vacancy rates.

And there's one more trend, mate. Oh yeah, trend number three. This is an interesting one. I bet you get this often in your world as well, Jack. People going, oh, you know, have I missed out on a lot?

Have I missed out on the boom? Should I be investing now? Do you get people wondering about cities' price growths that they've already had? 100%. And I was actually looking at the previous graph with Townsville.

Although it's had a really good period of growth, it looks like it's still early in its cycle. Really good point. So the third trend in booming markets, it isn't a must for this trend, but it's like the length of the cycle does continue well with this. And this is called inverse growth rates. And the key here is that you can't keep outperforming national averages forever.

You can't keep outperforming your long-term trends forever. Because if you do, let's just say Penrith becomes the new booming area. Are we saying Penrith is going to be more expensive than Bondi one day? It won't, right? Because they'll have their growth rates that they outperform, and then they'll eventually come back to averages unless someone goes and builds like McMansions on Pondi and go to Pondi, not Bondi, and you build McMansions all over and everything goes wild, and Pondi is the new place to be, and jet skis and everything start flying around.

I don't know. But I mean, the main thing is that Penrith will not be the same as Bondi unless it completely isolates as a city and it's now no longer Sydney. It's just a complete own trend. But even then. But the main thing to show is that you cannot keep booming forever, and you want to look at 20, 30, and even 40-year trends.

And this is where I think some people really get their agendas with data and they get it wrong. And to give you an example, there are going to be people who have their hot thing to sell you, and they'll use past track record. They'll go, oh, look at this area, great track record of 10% per annum. It's done 130% in 12 years, 10 years. We want track record.

That's key. Well, you kind of don't, because if you have track record, you can almost see majority of cities in Australia across the last 30 or 40 years haven't done overly well multiple decades in a row. They go through ups and downs. They go through periods of weakness. Because let's just say you wanted the track record.

If you went back to 2010, actually, let's take Sydney. Beautiful city, right? Major city. Let's take 2013. And you go, well, I'm a track record guy.

Property needs to be great. 2003 to 2013, 10 years straight. I'm talking post-Sydney Olympics. I'm talking lucky country in the GFC. I'm talking Australia's money city, Harbour Bridge, Bondi Beach, Parramatta's changing, shifting.

The West is changing. NRL team's going off. Everything's here. Sydney's where it's at. 3.

4% annual growth rate for those 10 years. So if you went in 2013, you go, you know what? I'm not a Sydney guy because the track record's not good here in Sydney. Well, you're kind of an idiot. You just missed out the next 10 years of booms because guess what?

That next six years, Sydney was mental. It grew almost double in those six years. And so guess what? Just because then you go, well, Sydney's gone crazy. Surely this is not meant to happen.

Well, all it did is it caught up those weak 10 years back to long-term averages. And now the 20-year trend of Sydney is at 5. 3%, which is a normal long-term 40-year history of data in Australia. The 20 years has caught up to that 5% to 7% range. So Sydney isn't any more special than elsewhere, but also you can't put it on a pedestal or put it on a bad environment just because it underperformed the last 10.

And we've seen that all over. If you went to Perth and you said to Perth in 2020, Perth can never rise. Well, you know, last 10 years, 2010 to 2020, Perth did minus 0. 1% annualized growth, meaning you actually gained no wealth if you bought a house in 2010 in Perth. And by 2020, the exact time you did a valuation, no growth.

And that means you actually lost more money because of inflation and council rates and water and insurance and all that stuff. But Perth booms, guess what its 20-year annualized growth rate is now? 5. 1, thereabouts to Sydney, right? So much the same as Sydney, but they go through these different cycles.

And so coming to a point of Townsville, Townsville was the one that I wanted to highlight that showed all three. And you came to your point of early cycle. Let's go through that. So Townsville, inverse growth rate, did it happen? Yes, 2014 to 2021, little to no growth, 2021 to 24 booming and still booming.

Number two is tight sales market, days on market 150 plus in 2020, now at under 50 in 2024. Tight rental market, vacancy rates at just over 3% in 2016, vacancy rates at 0. 4% in 2024. So that's an example of that all three trends in play. And Townsville did over 20% capital growth in the last 12 months with a national average near 6%.

So shout out to all the clients that trusted us to get them in there. I bought for myself in I think 2021 or two in Townsville, and you did as well. And it just showcases that we aren't here to look at a city because of its name tag or its label or the emblem of the Sydney's, the Melbourne's and everywhere, even though I've got place in Sydney too. The main thing is we're going to go where the numbers show and if you can spot inverse growth rates, if you can spot tight rental markets, tight market pressure, there's obviously about over 30 other indicators we look at and with depth and lenses to go really deep. But these are just the three, like if I was to go back at the napkin, which three look good to help me figure it out, I hope these three help everyone out.

So yeah, that's it from me on booming markets, mate. Anything else from your side to add or you want to know about from my side on the booming markets? No, I'll leave it with you, man. I don't want to add on any finance strategies, mate. This is your episode.

This is the game of property, this one.