Cracking the Code on Property Statistics: Key Statistics Every Savvy Investor Needs to Know- Part 1.
In this guide, we’ll delve into the critical property statistics that can unlock the Australian real estate landscape, empowering investors with the knowledge they need to crack the code and thrive in the ever evolving and always changing property markets.
In the dynamic world of real estate investment, success often hinges on the ability to decipher the wealth of information available and leverage key statistics to make informed decisions.
From understanding market trends to assessing investment opportunities, mastering property statistics is essential for savvy investors looking to purchase the best investment available to them at the time of purchase.
DSR Score - Demand to Supply Ratio
What is it? – This is a score out of 100 that represents the ratio of demand to supply for a property market. The higher the DSR score, the more that the demand for property exceeds supply of listings or property on the market. Just like in the fundamental laws of economics, the prices rise when the demand outstrips the supply, and property is no different. This score can allow investors to review markets at a quick glance having had the initial findings of a suburb already analysed.
How does it work? If a suburb has a score of 50, then this mean the supply of property is in balance with the demand of the market, and the capital growth for this area will more than likely growth in line with the long term national average. Any score over 60, is likely to mean this suburb is doing better than most. According to dsrdata.com.au there is only about 0.5% of suburbs that have a score of over 75, this means it’s probably a hot market, highly desired and will more than likely exceed the national long term average growth rate.
The score is derived from analyzing a set of data from across a number of statistics from a number of sources.
I like it because it’s a simple form to understand and it’s a quick reference point when looking at a multitude of suburbs. I also like it because it’s “made” by property people for property people as its founder – Jeremy Shepard is an investor himself and a numbers nerd just like me. DSR Data
But its only 1 of numerous statistics I like to record when researching property data, and to get the most out of this score, you have to have a paid subscription.
Market Absorption Rate
What is it? The Market Absorption Rate (MAR) is a key metric used in real estate to measure the rate at which available properties (Listed) are being sold or absorbed by the market within a specific period. It is an important indicator of supply and demand dynamics and can provide insights into the health and stability of the real estate market.
How does it work? The Market Absorption Rate is calculated by dividing the total number of properties sold within a given period (typically monthly or quarterly) by the total number of active listings or available inventory at the end of that period. The result is expressed as a percentage or ratio. A high absorption rate indicates strong demand relative to supply, suggesting a seller’s market where properties are selling quickly.
Conversely, a low absorption rate may signal an oversupply of properties relative to demand, indicating a buyer’s market with slower sales. A market with an absorption rate at or above 20% is typically called a seller’s market, whereas an absorption rate below 15% signals a buyer’s market.
MAR can influence pricing strategies for sellers and buyers. In a market with high absorption rates, sellers may have more pricing power and may be able to command higher prices. Conversely, in a market with low absorption rates, buyers may have more negotiating power and may be able to secure better deals.
For real estate professionals and investors, MAR is a useful tool for inventory management and forecasting. By tracking absorption rates, they can anticipate market trends, adjust marketing strategies, and make informed decisions about buying, selling, or holding properties.
Formula: The MAR is worked out by dividing the Number of Properties Sold by the Total Active Listings and then x 100.
Days On Market (DOM)
What is it? The Days On Market (DOM) statistics measures the average number of days it takes for a property to sell after being listed for sale. DOM statistics reflect the level of activity in the real estate market and they can provide insights into the pace at which properties are selling.
How does it work? The DOM calculation begins when a property is officially listed for sale on the market. This start date marks the day when the property is actively marketed and available for potential buyers to view. The DOM calculation ends when the property sale is finalized, and the property is officially sold to a buyer. This end date may vary depending on local real estate practices and regulations, but in Australia, it is typically when settlement occurs.
A shorter DOM suggests that properties are selling quickly, indicating strong demand or a limited supply of available properties. Conversely, a longer DOM may signal slower market activity, potentially due to factors such as oversupply, economic conditions, or buyer preferences.
DOM can influence seller expectations regarding pricing and market conditions. A property that remains on the market for an extended period may prompt sellers to reassess their pricing strategy or make adjustments to improve the property’s appeal to potential buyers.
Buyers often perceive properties with longer DOM as less desirable or potentially overpriced. A property that has been on the market for an extended period may raise concerns about its condition, location, or value relative to comparable properties.
DOM can affect negotiation dynamics between buyers and sellers. Properties with longer DOM may provide buyers with more leverage to negotiate lower prices or favourable terms, while properties with shorter DOM may attract multiple offers and result in competitive bidding situations.
Analysing DOM trends over time can reveal shifts in market conditions and buyer behaviour. For example, a decrease in DOM may indicate increasing demand or improved market sentiment, while an increase in DOM may signal weakening demand or changing buyer preferences.
I also use DOMs in feasibilities for renovations or developments when calculating holding costs.
Overall, DOM statistics are valuable metrics for both buyers and sellers to gauge market conditions, set realistic expectations, and make informed decisions in the real estate market.
Stock On Market (SOM)
What it is? Stock on Market (SOM) is a vital metric in the real estate market, representing the percentage of properties listed for sale (inventory) compared to the total number of dwellings in a particular suburb or area. This statistic provides insights into the level of supply available relative to the demand for housing within a specific location.
How does it work? SOM is a key indicator of supply and demand in the real estate market. A higher percentage may indicate an oversupply relative to demand, potentially leading to downward pressure on prices. Conversely, a lower percentage may suggest tight supply conditions, which could lead to upward pressure on prices.
SOM is calculated by dividing the number of properties listed for sale in a suburb by the total number of dwellings in that suburb, expressed as a percentage. It reflects the proportion of available housing stock that is actively marketed for sale at a given time.
Investors use Stock on Market data to assess market conditions and identify potential investment opportunities. High stock on market may present opportunities for buyers to negotiate favourable deals, while low stock on market may signal a strong market with potential for capital appreciation.
Sellers monitor Stock on Market to gauge market competitiveness and adjust their pricing and marketing strategies accordingly. In a high stock on market environment, sellers may need to price their properties competitively to attract buyers.
Changes in SOM over time can provide insights into market trends and conditions. Monitoring these trends can help buyers, sellers, and real estate professionals make informed decisions about timing and strategy.
These are but a few of the property statistics that can make or break a good investment choice. In Part 2 of CRACKING THE CODE ON PROPERTY STATISTICS: KEY STATISTICS EVERY SAVVY INVESTOR NEEDS TO KNOW, we will review the statistics of Vacancy Rates, Home-ownership V Rental Rates, Yields and Pricing Statistics among just a few more to get familiar with and to help you with making sound investment choices to growth a sustainable and profitable portfolio.
Part 2 CRACKING THE CODE ON PROPERTY STATISTICS: KEY STATISTICS EVERY SAVVY INVESTOR NEEDS TO KNOW out next week
Further information in
Related posts
Smart Questions to Ask Your Real Estate Agent
Disclaimer
This blog contains my opinions and doesn’t reflect the opinions of any organizations I might suggest or be affiliated with. Any information provided on my blogs is accurate and true to the best of my knowledge, but there may be omissions, errors or mistakes. The information presented in this blog is for informational purposes only and shouldn’t be seen as any kind of advice, such as legal, tax, financial, emotional or other types of advice. I don’t know you, and I don’t know your own personal or business circumstances, so please don’t rely on any information in this blog and take it as personal or professional advice for you specifically. Always seek advice from your own professionals.
This website has ever changing content and can include conversations and comments from others. I reserve the right to change how I manage or run my blog and I may change the focus or content on my blogs at any time.
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