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Nerd alert! Property nerds, the home for data-driven property investors, where we uncover Australia's hot and cold markets, latest headlines and trends. Hello everyone, this is your host Arjun Paliwal and I'm joined by co-host Kent Lardner. Hi Arjun. Hi Kent.
We are the Property Nerds and today's Property Nerds podcast is going into a few headlines that we've got to share and we'll share our thoughts on whether we agree with them, disagree with them, and then we've also got a really exciting deep dive on six must-know indicators when researching your next property investment. Now for these six indicators, they're actually covered off in our top 20 regions report for 2021. So if you haven't checked that out already, you can jump on our website thepropertynerds. com. au.
We've got an introductory special on that report and it's gaining a lot of popularity and we're really excited to share the top 20 regions that you should have your eye on in 2021. So Kent, let's talk about some of these headlines. Some big headlines. It's pretty good. I have to say I agree with most of them.
I'll start with the first one, the CoreLogic price index results came out and it's pretty much pointing in the right direction for housing everywhere. What it's done is it's highlighted Darwin as a standout location in terms of price rise. So probably the only thing I would be critical of there is for us when we look at the market, we don't look at the price change necessarily as the lead indicator. We look at inventory as our lead indicator. And when we look at say the cities and the regions and where we would rank them at the moment, we would put ACT up at the top.
Whereas if we look at that index, it would appear that Darwin's up at the top. So everything does point in the right direction. It certainly agrees with where the inventory trends are going. The prices are following, but the lead indicator for us is that index factor, which put ACT up the top, followed by Hobart, followed by Sydney. And with some of these lead indicators, data factors, I can't wait to deep dive into them today.
But I mean, with that headline, Kent, Darwin is alongside Perth. We're hearing a lot of on the ground commentary with regards to just market pressure, sales happening a bit quicker. So something's definitely starting there. I guess the key thing with that headline as well is just understanding some of the drivers behind markets like Darwin, markets like the WA and the old iron ore, how that's coming along. So I think that'll be an interesting one to watch.
What have we got number two in terms of headlines? Yeah. So just on that, on Darwin, yes, certainly days on market. It looks like about four or five days less month on month. So days on market is certainly starting to improve.
The next one was rents plummet for CBD units as residents retreat. Now we called that, I think six months ago or a bit longer. We could see that early on in the vacancy rate data shifts. Certainly when you applied the heat maps to that, you could see some month on month trends there several months ago, quite early in the year last year. So we can see that what's happened though is behind or following on from those vacancy rate shifts, prices are starting to adjust obviously.
So rent moratorium issues, et cetera. As soon as you move out of that and the market starts to operate freely, we can see that correlation between vacancy rates or the number of vacant properties and the landlords making those adjustments necessary to get that property earning some money. And we can all agree the impact of the borders have been huge on these rental markets, especially in the CBD. Grattan Institute, a couple of years back released some interesting data. And what they found was that people from overseas were typically renting for their first four years before home ownership came into the picture.
That's a long time. And that was over 60%. So now to see a large number of that are missing, that's a big gap as well from where the renters are going. Yeah. And they're being lured into a lot of the house and land locations, very attractive to people, a brand new house out in the suburbs, in a community, you can set yourself up, stay there for a long time.
So it makes a lot of sense. You're exiting the rental space. And the detached building approvals have been spiking for houses. So that's a clear sign that some of these stimulus packages, the incentive for someone who's living in a unit to go, do I really want to be here? Is this my golden ticket to get into the house market, first home buyer?
And we're seeing that reflect in finance for first home buyers. And we're also seeing that reflect in the first home buyer approvals. So that's a big change. Are you saying I could have a home office with an actual room rather than the hallway in my one bedroom unit in the city? Hey, hey, don't be mean to those Meritan, open up your door and there's a little study nook in your cupboard.
Remember those ones? Yeah. Okay. The third headline, and this is a good one. This agrees with everything we've been saying for a while.
Regional home values outperform cities in the great escape. That is a massive trend. And you and I were talking about this over coffee just before this recording. And I'd love for you to share your 1% movement analogy. That was great.
Well, yeah, it's pretty simple. If two thirds of the population live in the cities, it doesn't take too many people as a proportion, i. e. if 1% of the city decide they want to move to the regions because they can work from home, that'll have three times the size impact on the very, very smaller base, which is the region. So 1% moving out of Sydney goes up and not only do they have an impact in terms of squeezing out the market with extra demand, they've got extra money.
So they're certainly outbidding. And we've seen that. Literally, we saw that on my street, a property that we thought would sell at about 1. 1 has sold 200K above that from Sydney buyers who were just sick of the travel. And they've got excess, they've got surplus.
And the key thing to understand, right, is it's not about the 1% leaving Sydney and its little impact that that might have. It's like you said, it's that one, two, three people that leave and what impact they can create in another city. Well, that's it. And barely any impact at all. A 1% drop is not going to be significant in a Sydney or a Melbourne.
But if that 1% all flood into Geelong, it's going to be rather significant. And that's the key, right? Because we're not saying, and no one's really saying that every office in the city is going to be empty forever. Like that's not happening. And so when we think of migration or people leaving to these regions, I mean, if we take that June estimate by ABS with a net outflow from Melbourne at 7,957.
Huge. Huge number. Now it's huge for the regions because Melbourne, 8,000 people is a little dot when you think of the overall city size. But the outcome of the disproportionate change from our populations in our regional markets in comparison to our city, this is where the big shifts happen. Are you saying I could have a home office with an actual room rather than the hallway in my one bedroom unit in the city?
Hey, hey, don't be mean to those Meritan, open up your door and there's a little study nook in your cupboard. Remember those ones? Yeah. Okay. The third headline, and this is a good one.
This agrees with everything we've been saying for a while. Regional home values outperform cities in the great escape. That is a massive trend. And you and I were talking about this over coffee just before this recording. And I'd love for you to share your 1% movement analogy.
That was great. Well, yeah, it's pretty simple. If two thirds of the population live in the cities, it doesn't take too many people as a proportion, i. e. if 1% of the city decide they want to move to the regions because they can work from home, that'll have three times the size impact on the very, very smaller base, which is the region.
So 1% moving out of Sydney goes up and not only do they have an impact in terms of squeezing out the market with extra demand, they've got extra money. So they're certainly outbidding. And we've seen that. Literally, we saw that on my street, a property that we thought would sell at about 1. 1 has sold 200K above that from Sydney buyers who were just sick of the travel.
And they've got excess, they've got surplus. And the key thing to understand, right, is it's not about the 1% leaving Sydney and its little impact that that might have. It's like you said, it's that one, two, three people that leave and what impact they can create in another city. Well, that's it. And barely any impact at all.
A 1% drop is not going to be significant in a Sydney or a Melbourne. But if that 1% all flood into Geelong, it's going to be rather significant. And that's the key, right? Because we're not saying, and no one's really saying that every office in the city is going to be empty forever. Like that's not happening.
And so when we think of migration or people leaving to these regions, I mean, if we take that June estimate by ABS with a net outflow from Melbourne at 7,957. Huge. Huge number. Now it's huge for the regions because Melbourne, 8,000 people is a little dot when you think of the overall city size. But the outcome of the disproportionate change from our populations Speed to sell.
You're getting it quicker, lower days on market. However, there's one key mistake I do see people make when interpreting days on market. The key thing to understand is that it's not always about whether it's low or high. Sometimes we have to also consider that market and what it's always been showing. And regional markets are a great example.
If you had a look at a snapshot of a certain capital city, and then let's just say you went out to Ballarat, Bendigo, Geelong, and you saw a days on market in the capital city that's much lower, it does not necessarily mean that that is a stronger pressure or a higher performing market because that higher regional days on market may have come off some pretty highs. And that big drop is the percentage change, right? Yeah, and certain sub-market groups behave differently. So lifestyle properties can take a lot longer to sell. So when we do this, we're throwing properties into one of two buckets, effectively a housing bucket and a units bucket.
So the other limitation here, obviously, is that we might be in one of these regional or rural locations that's got a lot of farms or got a lot of lifestyle type properties, and they do take normally under all circumstances, good markets, cold markets, doesn't matter, do take longer to sell often. So I think there's some of the things you just need to be aware of. And usually it sorts itself out where the sample sizes are big enough. Where you need to be really, really careful with any of these things that we're talking about is when you've got very small sample sizes, small numbers, and that's where suburbs can get into a bit of trouble because you're dealing with a handful of sales and they do become quite volatile. So rolling things up into an SA3 region as we like to do does make things behave a little bit better.
And cleaner is better when it comes to data. Yes. So those three indicators, building approval pipeline, inventory levels, days on market, there are three of six indicators that come under our price bucket because essentially what those three indicators are is here's how many properties that are coming up over the next year or two. Here's the current demand and supply when you think of listings and the sales that are occurring. Is it hot?
Not hot. Warming up. And lastly, here's the change in the speed to sell. So these price indicators, you can actually find them as part of our methodology on our top 20 investing regions report. So if you're looking for that and you want to figure out where we think are the top 20 investing regions, jump on to thepropertynerds.
com. au and now we're going to roll in to the next three, our rental indicators. So we've got vacancy rates first. So Kent, what's vacancy rates? Yeah, so vacancy rates, we count up how many properties are vacant, what's a vacant property, three weeks or longer it's been advertised for.
So that becomes vacant. And then what we do is we measure that relative to how many properties are advertised by real estate agents. So it's not how many properties are rental properties in the suburb or the region, it's how many are advertised by a real estate agent. How do we know that? The ABS actually collects that data and they give that down to a very, very small neighborhood level.
So in this case, we're using it primarily at that SA3 level, but we also use it often and regularly at the suburb level. But they do make it available at a very, very small neighborhood level, which is a pretty handy metric. So vacancy rates, we look at how many properties have been advertised for three weeks or longer. Just a call out here, we're finding a lot of suburbs have no vacant properties. So when you start to look at vacancy rates as a percentage, especially in these areas where there's small volumes of vacant properties, the vacancy rate can become really volatile.
So I think it's an important thing to call out here that you need to be very, very aware of the limitations of suburb level data. And then when you move up to the SA3s, what we're even finding now is that there are some regions where there's a handful of properties getting into that three week and above markets, quite amazing. So to give it a different dimension or give it some reality, it's always good to look at it as a percentage, as a vacancy rate, but to actually look at vacant properties as a count. And it's just a nice sanity check. Yeah, that's a very good point because that gives it some real feel and numbers to it as well, right?
You can actually know who you're competing against in terms of the volume. Now with vacancy rates, again, we talked about maybe nine months ago about the rents. That would be such a big indicator. And that's been a huge change off the back of the vacancy rates. And I've always thought of different numbers or percentage groups to categorize them in.
I mean, I'll shout out some of my thoughts on categorizing vacancy rates, and they do differ from other researchers and professionals, but I find zero to 1% is the rental crisis. And this is when I'm talking both good and bad things. Displacement within communities, that's the bad thing. Caravan stories, you start hearing that where people start missing out and they go, stuff this, I'm on. The next one is the good side of it, which is rising rents for investors and the one open home rule.
You're likely to get multiple applications in the first open home in that zero to 1% range. The next range I like to call it is one to two. And I still consider this now as a tight market, not your rental crisis, but the tight market. The two to two and a half, this is where some would argue the three is their balanced point, but I feel the two to two and a half is my slightly more tighter but balanced point here. And then two and a half to three is when I start to get a bit cautious.
I'm like, hey, do we really see the merit in this location? Above three, renters, you choose your price. So I think this is where vacancy rates can move on to now our next indicator, and that's rents. So I know we might say simple, what is rents, but what is really the rent and how do we talk about rents in terms of a data view, Kent, and what that means for investors? Yeah, so we've got two left, obviously rents and rental yields.
So jumping straight to rents and we'll come back to yield. So the rents itself, we're typically looking at the advertised rental. Very hard for us to tap into the actual final lease amount. There are some data sets out there, but we can't access those or some people get access to it, but we're using the advertised rental. So whenever we're talking about rental movement, we're looking at the median, the middle of the advertised rental.
And typically we split that out by house and by unit. So that's pretty straightforward. When we're talking about houses, we're looking to group together houses and duplexes in that situation. When we talk about units, we're talking about anything that's strata. So you're finding your townhomes are thrown in there as well.
So that's a bit of a challenge with a lot of the data that we play with here because sometimes you can say, well, a townhouse sits halfway between an apartment and a house and it does throw things out. So especially in those markets where you've got a fairly even split between townhomes and apartments and sometimes you can get a bit of a run on one particular property type or sub-market group as we call them. So there are some limitations to it, but we have to suck that up. And typically what we're doing is we're throwing all the townhomes and units together in one. And what we love to look at is those percentage changes, just the straight out dollar value, the percentage changes, because as an investor, rising rents in a market that you're going into is a positive sign.
And it usually comes off the back of our previous indicator, which is vacancy rates. Now, jumping onto the next one, rental yields. What does rental yield even mean? Well, rental yield, the formula is we look at the annual rental expressed as a ratio of the purchase price. So that's the formula.
And there's a couple of key things I like to call out with rental yields is most of the published rental yields looks at the median price or the median rent for houses and the median sale price for houses. And the problem you've got there is if you're buying a property that's not at the median, you don't really know if that's going to be the most likely yield. It probably won't be. And traditionally, what we have found is the lower price properties, the smaller properties, the bed sits, have always had that higher yield. That's very common, still is common, but it used to be amplified 20 years ago was where you got all your yield was the small bed sits and the one bedders.
So what I always like to do is to take the median of a one bedroom unit in terms of sale price, the median of a one bedroom unit in terms of rent price and use that to calculate the yield, which gives you a little bit more accurate figure if you're doing a quick analysis as an investor. And then the same thing through to your three and four bedroom property. So we capture all of those medians stratified by bed count for that reason, just to help people more quickly understand if their yield's going to be higher or lower depending on the property type or the property size that they're buying. And with that verification of those yields and the bedrooms, it just helps you really get the reality in terms of what you're likely to have as a return. And this leads on to the environment we're in, right, which is the low interest rate environment.
And the word positive cash flow used to be a luxury, right? It used to be, wow, where do I find that?
