With all of the information readily available for property investors, it can be difficult to make sense of it all. So, we sat down with Property Investment Consultant at Meridian Australia, James Allnutt to chat through some of the trending ‘buzz words’ in the industry.
Top 5 ‘Buzz Words’
The median house price is the midpoint of all houses and units sold at market price over a set time. This piece of data can provide strong insights into the current value of residential property in a particular suburb. It can also show how the suburb has performed historically.
However, it shouldn’t be your only reference point for price data.
Median prices are not always an accurate representation of monthly performance. For instance, in months where a low volume of properties are sold, or, an oddly high amount of expensive or less expensive homes were sold, it can skew the data. Overall, it’s wise to use median prices over long periods to monitor the trend of prices.
Days on market.
Days on Market (DOM) refers to the number of days from the date a property is listed for sale, to the date when the seller has signed the contract of sale.
On a local level, DOM determines how other buyers are reacting to a certain property. A high DOM may imply the property may have an unattractive feature or indicate that the asking price is too high.
DOM can also aid in the assessment of the current sentiment of a property market.
Auction clearance rates.
Auction Clearance Rates are the percentage of property sold at auction over a certain period, either on a weekly or monthly basis. This metric can be useful when predicting the direction of the property market and should be considered as a general indicator of strength or weakness in the market.
Auction clearance rates are good market indicators, however, it’s equally important to remember that private treaty is by far the most common method of sale.
Clearance rates may also differ dramatically by suburb and state were given the many factors that directly impact auction clearance rates. Some of these factors include:
- Interest rate
- Numbers of bidders at an auction
Gross rental yield.
The rental yield measures the profit generated each year from an investment property as a percentage of the properties value.
To calculate gross rental yield, simply divide the yearly rental income by the property price, and multiply that figure by 100.
There is no definitive ‘good yield’ percentage, as they can differ from market to market. However, in metropolitan areas, yields typically range from 3-5%. In regional areas, you will typically find much higher yields (>6%) as the price of a property is much cheaper.
A rental yield of 5% is typically considered a strong yield and will likely cover most of your costs, especially in a low-interest-rate environment.
The vacancy rate metric represents the percentage of unoccupied rental property within a market.
Typically, a vacancy rate of 3% is a market evenly balanced between renters and landlords; 4% or more is an oversupplied market; under 3% is undersupplied.
For investors who are cash flow conscious, purchasing a property in markets with lower vacancy rates will typically achieve stronger yields than those with higher vacancy rates (vacancy rate below 3%).
Within undersupplied markets, rental competition is high as renters compete over listings.
Consequently, the risk of vacancy is lowered and landlords have greater potential to increase asking rent.
This is by no means an exhaustive list, however, they are essential data points to cover when conducting your own property research.
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*Disclaimer: When considering purchasing property, it is always prudent to seek the advice of an appropriately qualified professional to determine which strategy is most appropriate for your circumstance.