The real estate market is a complex and dynamic beast, so it can be difficult to predict when house prices will pivot from falling to rising. However, there are a few important indicators that homebuyers can use to get a sense of the direction of the market.
Inventory levels
Pay attention to the volume of property on the market. Typically, Australia’s property market functions ‘normally’ when around 250,000 homes are for sale at the same time. At the moment, that figure is south of 200,000 so competition for property can be substantial.
When inventory levels are low, buyer demand underpins the strength of prices, which can either hold firm or rise. On the other hand, when inventory levels are high, this can signal an oversupply of homes, which puts buyers in a position of strength when negotiating.
Days on market
Monitor the average days on market because when homes are selling quickly, it is usually a sign of a strong seller's market. Conversely, if homes are staying on the market for a longer period, it could be an indicator of a buyer's market.
Similarly, keep a close eye on auction clearance rates. When only 50% of properties are selling under the hammer, you’re likely in a buyer’s market. When you see clearance rates in excess of 65%, or a rapid lift in clearance rates, the market is moving more in favour of vendors.
Monitor discounting
Pay attention to changes in home prices, both in the neighbourhood you're interested in and in the surrounding areas. If prices have been consistently falling, month after month, but then there is a noticeable increase in prices, it could be a sign that the market is turning around and moving into stronger territory.
Interest rates
The direction of interest rates affects the real estate market. When interest rates are low, it can make it easier for buyers to obtain financing and can lead to increased demand for homes, potentially resulting in rising prices. On the other hand, when interest rates are high, it can lead to decreased demand and potentially falling prices.
Consumer confidence
In Australia, we’re typically very confident about investing in real estate but levels of confidence wax and wane. When we’re feeling confident about our security of employment, government policy, cost of living and interest rates, we’ll pay more for the home we want to live in. The opposite is of course true when Aussies are anxious about those same factors.
There are a variety of organisations that measure consumer sentiment, so keep an eye on regular updates from The Westpac-Melbourne Institute Index of Consumer Sentiment. If house prices are falling but consumer sentiment begins to lift, you can safely assume the property market will soon turn.
Consumer sentiment has risen, month on month, and is now at its highest (85.8) since June last year. The upturn has been buoyed by the Reserve Bank of Australia (RBA) pausing its rate hikes.
Talk to the experts
Nobody has their finger on the pulse like a real estate agent, so it's important to go to open homes, meet your local agents, and talk to them about what’s moving and what’s not. First National Real Estate agents are your local experts, so ask them about days on market trends, clearance rates and how much vendors are discounting from their original asking prices. This will help you to determine when the market is about to flip from falling to growth.