This transcript was generated automatically and may contain small errors.
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, this is Arjun Paliwal here and I'm joined by Kent Lardner, co-host of the Property Nerds. Hi Arjun. Hey Kent.
Well Kent, you know, before we get into it, I just wanted to make sure everyone gets a bit of a heads up on what we're doing here on the Property Nerds podcast. So we are property investment researchers and our goal here is to really unpack the most crucial real estate data, deep dive into Australia's hot and cold markets, headlines and trends. And so I also run a buyer's agency by the name of InvestorKit, so that's where I come from. And Kent, you want to give us a bit of a spill on what you do at Suburb Trends? Yeah, Suburb Trends, I focus very much on content for the real estate sector.
So, you know, the stuff that we talk about packaged up and branded up, you can put it in your website, put it in a social post and be the local expert. So that's what I do. Now, if you guys want to learn more about either of those, that's suburbtrends. com. au and thepropertynerds.
com. au as well as investikit. com. au. So Property Nerds episode today, we're going to have some fun on a bunch of headlines and we really, really want to make sure as listeners you get the opportunity to deep dive in headlines using the data that we'll give you, but also really see if this is what's happening or not.
Because at the end of the day, there's going to be a new article every time you refresh your newsfeed and some of them will get you off your chair and like, okay, holy crap, what's happening here? And I think we just got to make sure that we look at it with some sense, make sure that it's not really shocking you where it shouldn't. And from there, you're able to make sensible decisions based on the information you get. So Kent, the first headline that's in front of me now is buyer FOMO fuels house price surge. What are your thoughts on this one?
Yeah, well, this is a Captain Obvious one, I think, but it's actually saying that we've seen the largest lift in Australian house prices in 17. 5 years as auction clearance rates reach new highs. I think the biggest concern that we've always got is when we call it one market, we don't ever like to call it one market. It's a coincidence at the moment that obviously the housing market across most, not all, but most regions across Australia are growing very, very strongly. With the exception of the unit market, I think the apartment market, we've spoken about that quite a few times, we will talk to that today.
But a lot of the CBD apartment markets are not faring well, but the housing market is surging all over the country generally, but we do like to always call out that we don't want it to be viewed as a single market. Yeah, great point, Kent, because there's just such a variance of what's happening across those units and houses, different cities. And when we look back at even 2020, CoreLogic reported Adelaide as one of the best performing major markets. And when I classify major as over 1 million in population, so that's your Adelaide, Sydney, Melbourne, Brisbane, Perth. And then you've got your hot and steady heat as well, which is interesting across your Hobart, Darwin and Canberra, which have been roaring away, especially Canberra.
And so when I looked at this one, I thought I'd also throw in some interesting on the ground analysis from the FOMO fuels house price surge. We've got the luxury of having at least over what, 22 people now across Australia on the ground visiting open homes all the time, seeing the heat, seeing the numbers. And some cities, I mean, just to give you some examples, in the regions of Adelaide, we've seen upwards of 50 people at the first open home, and you have to make a decision on whether I get this or don't in the first open home. So it's crazy. I mean, the same things are seeing across parts of Sydney's premium auctions, Canberra, and surprisingly, the market heat in Hobart hasn't fallen off.
It's been strong for now, what, four to five years. So I'm in a big tick on this article. I feel what's happening well and truly is, you know, the buyer FOMO fueling house price surge. And I think it really comes down to inventory levels. Should we talk to that, Kent, on what we're seeing?
Interesting here, the CoreLogic hedonic home value index was published on the 28th of February. So it's fairly recent. It's listed down by the capital cities. An interesting metric for mine is I looked at the stratified index by bed count. And the standout for me was how much change, increase in median price there has been for four bedroom properties, a significant surge.
So that seems to be a very interesting call out in the data. So whilst this hedonic index, you know, we can assume, I think they changed the methodology recently, but it looks like it's an overall aggregate of houses and potentially aggregate of units. But I think this one's houses. But specifically, if we look at four bedroom houses in Sydney, it's up around that 5% mark on an annual growth mark. So that's pretty significant.
Melbourne, they actually listed the annual growth at minus 1. 3. Whereas if I look at the median change in four bedroom houses across greater Melbourne, it's actually significant increase. It's well over 5%, about 5. 7%.
So I think that's an interesting thing to kind of start to look at the data from a couple of dimensions. And I think to your point, Arjun, about our inventory, I always like to look at a few metrics, not just the one. So if we can see that the overall median is going in a certain direction, if the three bedroom property median is going up and the four bedroom and the inventory levels are going in a certain direction, it does make sense when they all work in the same direction. So yes, I agree with that article. Yeah, totally.
And just on the topic of inventory of what we're seeing, if you'd like to check out our new free monthly snapshot of inventory, each month we are dropping it on the Property Nerds social media pages, whether it's on Facebook, LinkedIn, we're seeing all this stuff here and we're putting it out there each month. And I've got in front of me the charts for January ending data. And just looking at now, six months ago and 12 months ago, there's a tightening across most of Australia. And the key standouts we can firstly comment on is the ACT. So ACT inventory levels sitting at 1.
3, Kent, this is very tight. It is, it is. And that is probably a nice segue into the next headline, which was from all homes, houses in the inner north, i. e. the ACT inner north, crack one million mark in median house prices.
So I think this actually was a domain report, but I think they're one of the same company. And it does look to me that the ACT still has the potential to pip Sydney for prices within 12 to 18 months. So it's surging. The inventory levels are certainly the lead indicator for us. We keep on talking about that.
But Sydney is tight, 2. 32, the greater Sydney for houses as an inventory level. But ACT is 1. 3. It's extraordinary.
So it's obviously a frenzy. Have you got any feedback on the ground in the ACT? Yeah, so the same commentary, you know, the example I gave on Adelaide with so many people coming into open homes, it's the same thing here in ACT. If you're in, you know, your Belconnen's, your Tuggeranong's, your, you know, even closer into the inner parts of ACT, it is a factor of do you want this property? You put an offer in on the first open home or do you not want this property and you miss out at the first open home?
So that's how tight conditions are. And they're not cheap. So North Canberra is around that one million median. So that means half the properties selling are above that in that particular SA3. And for South Canberra, it's 1.
39 million. So, you know, I always like to just pinch myself and remind myself what a median is. It's the halfway point. So half the properties are selling above 1. 39 million.
So it's not a low cost area by all means. And it's surging still. Yeah, so I think you're going to hear a lot from us on what's happening out in the ACT and, you know, things across many of our markets on that inventory snapshot. Please do check that out. It's showing a lot of high pressure.
And just to refresh the memory for those who are new to our measure of inventory, when Kent talks about inventory levels of 1. 3 in the ACT market, we're assuming that let's just say there is a 10 per month sales average occurring. You're saying now that there are 13 listings and pretty much 10 of those are gone in the first 30 days. A nice way to explain it is that if no property listed for sale in the next couple of months, you wouldn't see any properties for sale in that region. All the inventory would be cleared in 1.
3 months. That is amazing. So, you know, you've got your ACT at 1. 3. And just to shout out a few others, you're familiar with what we're seeing across the country.
Greater Hobart at 2. 1. Adelaide at 3. 6. Sydney at 2.
- Melbourne at 4. But the trend that we're seeing is almost all So you let the data speak, and the data tells me medians are very, very unreliable for this suburb. And if you're a sales agent looking at this list and you're a vendor looking at this list and you're going, oh no, here we go, I've lost 9 to 10 percent, you're probably sitting there laughing at this article. And I think this is where it's important to really dig deep into the data, especially when talking medians, price segments, inventory levels, on the ground heat, consider those things.
And this leads us to another segue around valuing these properties, thinking about the importance of, I guess, price indices, automated valuation models, how to really understand what's truly happening in these properties. Kent, do you want to touch on that? Yeah, so this really does highlight some of the problems we've got with indices or measuring price growth. So a lot of us have always been comfortable with the concept of a median, what that median is. In most cases, when we're trying to measure a median down to a suburb level, we're forced to use a rolling 12-month median to try and build up the sample size.
That's a trade-off, obviously. The trade-off there is you're not getting that short-term movement because you really need to kind of see several months of change for that to truly flow through and fill up that rolling 12-month sample. So that's a bit of an issue there. So the trade-off there is that you're playing with time and you have to go to a rolling 12-month to build up a statistically or what you believe is a statistically relevant sample. So what we often do here at the Nerds is we roll up to the SA3.
And in most cases, when we look at the SA3, it's a fairly robust sample. We do that one of two ways. We do a rolling three-month sample, which looks pretty good, and we do a rolling 12-month sample. So in most cases, the SA3 overcomes those compositional bias and distribution problems that we've got down to that suburb level. But there are other indices out there, and obviously CoreLogic have got one called the Hedonic Index, and that just tries to or seeks to account for some of those crazy variations that impact things like medians.
Now, I've often get asked, well, how do you know when a hedonic index or a suburb is reliable using the hedonic index? I'll just talk in general terms because I know that they changed the methodology, so I'm going to have to make the assumption that I don't know all the ins and outs of their method. But let's just say what it's trying to do is use similar technology, if not the same technology, as you would use in an automated valuation model. So here's a really simple rule. If you go to one of these suburbs and pull up an automated valuation model, and they're available on the portals now.
And if you're wondering, guys, what an automated valuation model is, am I correct in saying I go to a ComBank app or I go to an ANZ app or I go to a domain home price guide. When I see the property, I type in that value that shows up. Correct. That's it? That's an automated valuation model, so AVM for short.
These price estimation tools have a confidence level. Sometimes they're a bit obscure and hard to understand, but maybe the best thing to do is to say if you're using these in your suburb and you see errors, if you've used these and had some bad experiences, or on the other side of that, if you're in a suburb where they're fairly reliable, that's a good lead indicator to tell you how reliable your index will be. So if I've got an area or a suburb where the AVMs are performing poorly, making some big mistakes, so too you can expect the same issues are going to flow into your indices. And this is where we come back to the SA3, and we really pull up a lot of these different suburbs to create, I guess, a cluster of suburbs. And for those who are going, what's this SA3?
What robot or code language are you throwing at me? It's essentially, in the most simplest of forms, a cluster of suburbs that come together to create a bigger data set, something more reliable. And it's done by ABS, where they have various measures of SA1, 2, 3, 4. And as you notice, the SA numbers get bigger, so too do your geographic locations, right? Is that a fair way to explain it?
It is, and they've done a great job. So they've taken a statistical approach to this, whereas a local government area doesn't take a statistical approach to it. So we've ditched LGAs, or local government areas, and we favor the SA3. So it's a bit of a Goldilocks metric. And they've sought to cluster these areas on a number of factors.
So they're trying to group together regions that have similarities. So suburbs that belong to one SA3 would have more in common with other suburbs in that SA3 based on the ABS approach, if that makes sense. Correct. And this is where SA3 will have some pros and cons, and we want to shout them out. So the pros are, if we bring up the LGA example, Brisbane LGA, over a million people.
It's huge. Makes no sense for me to make a property investment decision based on what the data for a million-plus people is showing. So what do we do? We look into SA3s because we don't want to look at that one suburb with the median price that fluctuates so much. And we end up getting over 10 SA3s, which divide this median price up into clusters of suburbs and their prices and their inventory levels.
And so that's an example of where it works really well. Where it doesn't work so well is when you sometimes go out to more rural communities, more regional communities, and say we have the SA3 of Toowoomba or SA3 of Orange. Instead of just grabbing its core suburbs in the city center, we've now expanded to try and fetch more population size, more numbers and samples, and we extend to the whoop-whoops of these areas. And so that's where we want to make sure we call that out. But I guess that really helps us figure out how reliable that data is.
Exactly. And again, local government areas, probably the other problem we've found there is they are fairly volatile with a lot of the councils that have been amalgamating. So that does make it a bit of a challenge. But if you can compare and contrast how we approach what we're measuring, which is a median, it takes a lot of the mystique out of the measurement system. So there's no cloak and dagger.
There's nothing to hide. The median is the median. And you can see the distributions. You can see how reliable it is likely to be by looking at that distribution through time. And so, Kent, when we're talking now about price growth measurements, we've spoken about how the skews of median, the indices, how to spot whether they're confident or not.
When we're talking about price growth measurements, does it really then say to us, yes, we've gotten more samples at a bigger level, but does it always just then come back to what is this property selling for now and what are they selling for a little bit later, comparables and so forth? Yeah, look, I think the biggie, we should talk about automated valuation models now because I think if you go back historically, what happened in Australia is there was, I think I go back 15 years ago, this was a fairly new thing, especially in the public area. They were originally a product brought in from the United States. They were sold at a premium price. And then Zillow came along in the United States with their Zestimate product.
And what happened is AVMs morphed from being this alternative valuation or QA type product used in the mortgage sector and morphed into something entirely different. It became a media play, became a lead gen tool. So effectively the success of that Zestimate in taking a fairly new entrant in a crowded space and thrusting it to number one position very quickly motivated a lot of the portals in Australia to do the same thing. And then off the back of that, suddenly it became a lead gen tool. And that's what they are today.
Primarily they're a lead gen tool. There's a secondary use case, which is banks using them for quality control checks. But what we're finding now is that because it's in the public domain, a lot of people don't truly understand when they work and when they don't work or how they work. And I think a lot of people in the real estate sector, be it an investor, be it a buyer's agent, valuers, you name it, real estate agents, they come up against AVMs regularly. It's a big challenge.
And in America, there was a meltdown for quite a few years about Zestimates that didn't work and how it was impacting the industry. And everyone's kind of the dust has settled now, so people don't talk about it as much. But there are several suburbs and several scenarios where AVMs will continue to cause you grief depending on the suburb you're in. And if you look at the topography, the geology, geography of Australia along the coastline, any of those suburbs along the beach do have problems. Any of those suburbs that are split by a highway and have duality in the suburb, any of those suburbs that have a crazy distribution like Turack, the unit market in Turack, they are all lead indicators.
They're all things that tell us that AVMs are going to have some trouble in these locations. And this is where we love talking about the combination of certain methodologies, certain data sets, and the human touch, right? And we actually have put together a free guide for those who want to check it out. You can jump on thepropertynerds. com.
