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Using Sales Activity To Predict Price Growth

An easy way to see where future property price growth is going to occur – or not occur – is to look at transaction numbers.

When sales numbers lift, it means competition for properties is increasing, and what generally flows from that is price growth.

Sales activity numbers are a great forward indicator of what will happen with prices and is actually a much better barometer of what is about to happen in the market than looking at median house price data.

The figures on changes in median prices published by various research companies lag the market – they tell us what has happened, allegedly, in the recent past – but sales volumes provide clues about what will happen to prices in the near future.

I’ve followed transaction data for years and its evident that steady increases in transaction numbers inevitably leads to future price growth.

It’s not immediate, because that increase in buyer activity sometimes takes up to six months to translate to price growth, but it will eventually do so.

And that time lag is a godsend for real estate consumers, because it means they can take action before there is a major change in prices.

And it works when markets are in reverse as well. Months of steady decreases in sales numbers is generally an indication that the market has passed its peak and is no longer as competitive as it was previously.

In those circumstances, price growth will slow down or prices may eventually fall.

The Sunshine Coast is one market where transaction numbers have been slowing in the past six months, but prices are still strong. Given the trend with sales numbers, it’s clear that this market has moved beyond the peak.

It had three or four years of exceptional price growth and now we can see sales volumes in many of its suburbs tapering off.

My latest analysis of the March Quarter transaction figures shows that sales are rising in relatively few Sunshine Coast suburbs, as most of them have plateaued and are well past their peak.

That has not been reflected in the price data yet, but it will be.

Most locations on the Sunshine Coast have recorded annual price growth of above 20% and in fact about 30 suburbs recorded annual growth above 30%.

The latest figures for the past quarter show multiple suburbs recorded price growth above 5% some even in double digits.

Alexandra Headland was a real standout, recording a 35% increase in its median house price in the past three months.

It’s important to note that the Sunshine Coast has its own cycle. It was booming – because of what was happening in the local economy – long before the national boom which started about two years ago.

So it’s not surprising it has now started to slow, whereas many other parts of the Regional Queensland market are still rising, including Toowoomba, Rockhampton, Mackay, Bundaberg, Gladstone and Townsville.

Another market to experience a slowdown in sales activity is Sydney, where sales volumes peaked in the middle of last year and have been trending down ever since.

There was a particularly noticeable drop-off in sales volumes in the March Quarter this year.

That is now starting to be seen in price outcomes – with the overall median for Sydney dropping, though only slightly, in April and May.

The media has blamed interest rate rises for a drop in Sydney values – but in fact sales volumes were falling long before interest rates increased and even before interest rate rises were being talked about as a possibility.

Blaming those Sydney decreases on interest rate rises is a serious misinterpretation of what is happening.

The key point, however, is that there are very few markets around Australia which are replicating the Sydney experience.

We are still seeing very high levels of sales activity, and strong price growth, in most market jurisdictions – including in Brisbane, Adelaide, Perth and Darwin, as well as most regional markets.

Because of the importance of sales activity numbers as a forward indicator of what will happen with prices, we analyse sales volumes for every suburb and town in the nation every three months.

We put that information into a quarterly report called The Price Predictor Index.

In pulling together the data for the Winter 2022 edition of the Price Predictor Index, we can see that sales activity is as strong as ever in many parts of Australia.

Adelaide is still pumping; so is Brisbane. Canberra remains very solid.

Perth and Darwin are both very strong, indeed probably the strongest we have ever recorded.

In these places, we are unlikely to see prices falling any time soon.

So, why do we read constantly in the media that property prices are on the way down?

Well, it’s because there is very little real analysis of the market by people with expertise.

The media tends to think the rest of Australia follows Sydney’s lead when it comes to what is happening in property markets.

But that is not the case – and my observation is that it has never been the case.

Sydney and Melbourne are usually the exception to the national rule – which, right now, is that sales activity remains very solid and prices are continuing to rise in most markets.


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