What happens when a market turns from being controlled by buyers to being controlled by sellers? Well the answer is the prices are always impacted. So how do you identify the type of market you will be buying or selling in? Ben Kingsley provides some thoughts on that.
Kevin: What are the signs that the market is turning from a buyer’s market to a seller’s market or a seller’s market to a buyer’s market, and really why is it all that important? I’m going to discuss that now with Ben Kingsley. Ben is the CEO and founder of Empower Wealth and also the chair of PIPA.
Ben, thanks for your time. Do you guys think about this all the time – where are we? And why is it all that important? How do you measure it?
Ben: Yes, Kevin, we absolutely think about it. It’s critical. At the end of the day, the reason why we’re buying property is we want it to grow in value. If it doesn’t grow in value and we’re servicing the mortgage and the interest on that mortgage, there’s no return on investment. So, it really is something that we study deeply, because it is all about the investment return.
There are definitely things that we look for in the research that we do around that. So, how do you get to that research? The first thing I look at is auction clearance rates in city centers where auctions are the preferred means of selling. Certainly Melbourne and Sydney are a great indicator, because they give me real-time feedback. They give me feedback to know what sort of clearance rates are moving.
If we were to think about it, 65% or 66% and above is where we start to see more of a seller’s market, and anything below that, we start to get into a buyer’s market. That’s where the clearance rate is around that 65% range. That’s the indicator. Now, if we start getting up to 75% to 80%, we’re really in a great seller’s market, and there’s obviously growth being had there, because there’s a lot of competition. So, if you have that, that’s one great mechanism.
The other one is, when you’re out in the field and you’re going to open for inspections, have a look at the number of people who are going through the property. Ask the agent how has the interest been? You’ll be able to visualize that interest as well. If the sign is going out and there’s five other parties waiting out front, then you know that obviously has a bit of interest. And if that’s consistent with the five or six properties that you might inspect on a Saturday morning or a Saturday afternoon, then it’s important to read that market play in the field.
In terms of the statistical tracking that you want to be doing, stock on market is another great way of doing that. So, how do we do that? We go to the search engines, so the property portals, RealEstate.com, Domain, those types of portals. We just put in the suburb and we’ll put in the type of property that we might be interested in – being house or unit or so forth – and just hit the Search button. It’ll bring up the number of properties for that particular suburb.
Now, as a little tip to the listeners, make sure you tick off the button that says “neighboring suburbs,” so you just get accounts for that particular suburb. And that will give you an idea of the stock on market.
Now, the lower the stock, the better. You want to be tracking that over a period of time, and that will give you an indication of whether stock is coming down or going high, because ultimately this is all about demand and supply, Kevin, isn’t it?
Kevin: Absolutely. Another thing I always like to do, too, is work out how much stock is in the market. In other words, if no more stock came on the market, how long would it take to sell all of that? The lower that becomes, also the more demand you have for property.
Ben: Yes. Days on market, so it’s effectively how long are these properties taking to sell? Now, when you’re doing an aggregate of that, you use the same principles. If you’re going to do this yourself, you’ll set up a little spreadsheet, and you’ll track those properties, and you’ll see how long to take to sell.
You’ll also ask the local agents what’s the average days on sale at the moment for these types of properties? Ask two or three agents to get an idea, if you don’t have the time to sit there and do the analysis yourself. That is obviously a terrific way of seeing this. So, the lower days on market the more interest there will be.
Now, just also remember if you’re in an auction market, the days on market should still not come under 20-odd days, because what you’re normally seeing is four- or five-week marketing campaigns before they actually sell the property.
The last one that also comes into that is average vendor discounting. So, what sort of discounts are we seeing from what the property was offered for? If we’re not in an auction market and we’re in a private treaty selling market, advertised for $400,000, sold for $380,000. So we’re getting a percentage of the vendor discount that’s going in that market. Some of those search portals and CoreLogic, and those types of players provide a bit of that data.
And one final one, Kevin, which is really interesting. When I know that I’m looking at a marketplace that there really is still more sellers than buyers, I get commentary. I look at the way in which the descriptions are written by the agents.
Sometimes, if you’re going to regional areas and you’re having a look around and a couple of the ads are saying that the seller is open to offers, that this is a good buy, that the price has been reduced, those types of things, if you’re getting a bit of that sense, then you’re probably buying in a marketplace that is still potentially correcting itself, as opposed to showing signs of improving.
Ideally, we want to time our entry into a marketplace where there’s evidence of upswing, where demand is starting to exceed supply, because that’s where we’ll find those growth markets.
Kevin: Very good insight there, Ben Kingsley. Ben is the CEO and founder of Empower Wealth. Ben, thanks so much for your time.
Ben: Absolute pleasure, Kevin.