I’ve said many times that people should ignore what bank economists say when they decide to dip their toe into property market analysis – a subject which is outside their area of expertise.
In fact, you should completely ignore them when it comes to forecasting what is going to happen to house prices, as they usually get it wrong – indeed very wrong – and often the eventual outcome is the opposite to what the bank economists predicted.
But, having said that, there is one piece of regular research put out by the major banks which I believe is a must-read for property investors.
The State of the States report, published quarterly by CommSec, which is a division of the Commonwealth Bank, provides good analysis of what is happening in the Australian economy and I believe is a great indicator of where you might want to consider investing in real estate.
One of the fundamental beliefs at Hotspotting, that drives our analysis of locations, is that property markets arise out of local economies.
Individual locations out-perform because of what is happening in their local economies.
And I’ve found over the years that the State of the States report is a very useful document because there is a strong correlation between the strength of a state or territory economy and the property market performance of the capital city.
For example, for the past couple of year Tasmania has been ranked as the No.1 state or territory economy in the State of the States report.
Historically, Tasmania typically was ranked in last place in this report. But then, 4-5 years ago, it started to steadily rise up the rankings as its economy improved.
Coinciding with that rise was the rise of the Hobart property market.
In the past half dozen editions Tasmania has ranked in top spot in the State of the State report and at the same time Hobart has been a national leader in terms of property price growth. The state’s regional market has also been an out-performer on price growth.
In 2021 Hobart was at the forefront of price growth for houses and for apartments, as was Regional Tasmania.
It is not a coincidence the improved Tassie economy has directly corelated with the improved Tassie property market.
Another good example is the findings on South Australia.
This state has long been seen as a low-growth economy and traditionally has ranked 6th or 7th among the states and territories.
But recently that has started to change. South Australia has gradually risen up the rankings in the State of the States report – and in the latest quarterly edition, South Australia ranked as the No.2 economy in Australia.
I have been advocating Adelaide as a place to invest in for a number of years, but at times it felt like no one was listening.
In 2021 the Adelaide property market was a fantastic performer to the point where it is competing with Brisbane to be the city with the highest month on month price growth.
Again, it is not a coincidence that the improvement in the Adelaide property market has coincided with the rise of the South Australian economy.
Property investors should make the State of the State report a must read. It is probably the best of the economic reports available in terms of reflecting what is going on throughout Australia.
Following its trends, if you had invested in Hobart three or four years ago you should have done well.
In 2021 Hobart house prices increased by 27% and units by 34%.
Across regional Tasmania house prices increased by 29% and units 30%.
There is nowhere else in the country with those sorts of results across both the house and unit markets.
Property investment is all about picking the spots which are primed for future price growth and if you follow what is happening with the economy and pick those which are on an upward path, you can invest in real estate profitably.