Understanding property market dynamics is crucial for successful real estate investment, and Stock on Market (SOM) stands as a fundamental metric in analysing market supply and demand. This key indicator reveals market depth, buying opportunities, and potential price movements.

In property investment, understanding supply levels is essential. Stock on Market (SOM) is a crucial metric that offers insight into the number of properties available for sale at any given time within a specific area. This measure is invaluable for both property investors and homebuyers as it reveals market supply dynamics, buyer demand, and helps forecast potential shifts in property value. This article breaks down everything you need to know about Stock on Market and how it can be strategically used to make informed investment choices.

1. What is Stock on Market?

Stock on Market refers to the total number of properties listed for sale in a particular region, often presented as a percentage of the total housing stock in that area. By analysing SOM, investors can gauge market saturation levels and buyer interest, which in turn influences property prices and growth potential. Higher SOM suggests a buyer’s market, where properties are slower to sell, while lower SOM indicates a seller’s market, with increased buyer demand and quicker sales.

2. Why is Stock on Market Important to Property Investing?

Stock on Market plays an essential role in property investment for several reasons:

Market Supply Indicator: SOM reflects the availability of properties on the market, helping to identify market balance.

Demand-Supply Balance: A high SOM indicates an oversupply, while a low SOM points to a potential shortage and higher buyer competition.

Price Trends: SOM can hint at future price movements, as lower SOM tends to lead to higher prices due to limited availability.

Investment Opportunities: SOM can highlight market entry points for investors, particularly in areas with declining SOM, signalling rising demand and value potential.

Market Cycle Timing: By monitoring SOM trends, investors can time their market entry and exit, maximizing profitability.

3. What Happens if You Don’t Use Stock on Market as a Metric?

Ignoring Stock on Market in property analysis can lead to several risks:

Overpaying in Saturated Markets: Without understanding SOM, investors may overpay in oversupplied markets where prices are likely to stagnate or fall. Misreading market competition levels

Missed Timing: Failing to account for SOM may lead to poor timing, where investors buy when supply is high, impacting property appreciation potential. You may also miss early warning signs of market changes.

Overlooked Investment Opportunities: Areas with low SOM and high demand often yield higher returns, but these opportunities are missed without SOM insights. There may not be recognition of opportunities in oversupplied markets particularly on for long term strategy.

Increased Holding Costs: High SOM can mean properties stay on the market longer, leading to extended holding periods and associated costs.

Reduced Negotiating Power in low SOM times or leverage your negotiation power in high SOM times.

4. What’s the Ideal Stock on Market Metric to Look For?

The ideal SOM percentage depends on market conditions and property types. Broadly, here’s a guide:

Low SOM (0-1% of total housing stock):

• • Signals a seller’s market, with strong demand and potential price growth.
  • Fewer listings translate to quicker sales, often with minimal price negotiations.
  • Quick absorption of new listings

Balanced SOM (1-2%):

• • Indicates an equilibrium where both buyers and sellers have fair negotiation power.
  • Prices tend to be stable, with moderate demand and a steady pace of property turnover.

High SOM (2% or higher):

• • Suggests a buyer’s market, where supply outpaces demand.
  • Properties take longer to sell, often requiring price reductions and incentivizing negotiations.
  • Rising stock levels, absorption of new listings

5. How is Stock on Market Calculated?

Stock on Market =

total number of properties listed for sale /  by the total housing stock in a given area:

A 2% SOM suggests a balanced market, where neither buyers nor sellers hold a strong advantage.

6. Strategic Applications for Stock on Market Within Different Investment Types

Buy and Hold Strategy Applications

For long-term growth, SOM provides insight into market entry points and timing of purchases:

• Identifying Undervalued Areas: Target areas where SOM is low, but property values haven’t caught up, indicating a growth opportunity. Enter markets when stock levels are higher than historical averages.
• Timing Market Entry: A declining SOM over a period of 6-12 months can signal increasing demand, ideal for buy-and-hold investors seeking appreciation.
• Monitoring Neighbouring Markets: If neighbouring suburbs show lower SOM, it may indicate potential spillover demand, presenting future growth opportunities.

Reno and Flip Strategy Applications

SOM is also valuable for short-term strategies, such as renovations and flipping:

• Market Saturation Awareness: High SOM suggests that there may be too many comparable properties on the market, which could lengthen the time to sell post-renovation.
• Setting Competitive Price Points: By knowing the current SOM, flippers can price competitively in oversupplied markets, helping their property stand out and sell faster.
• Timing the Flip: In low SOM conditions, demand is high, ideal for listing renovated properties at optimal price points with minimal holding time.

Development Strategy Applications

For developers, SOM helps assess project feasibility and timing:

• Assessing Demand by Property Type: Track SOM across different property types (e.g., apartments vs. houses) to understand buyer preferences. Analyse current and pipeline supply. Study absorption rates in target market by measuring the SOM. Monitor competitor project releases.

• Launch Planning: Developers can time their project launch based on seasonal SOM trends, releasing units when demand is highest, and supply is low.
• Pricing Strategy: Adjust prices based on SOM analysis to meet market expectations and accelerate project sell-through rates.

7. Common Mistakes When Using Stock on Market

• Ignoring Seasonal Variations: SOM fluctuates with seasons; it’s crucial to consider yearly trends rather than month-to-month changes.
• Not Differentiating Property Types: Some property types (e.g., apartments) might show higher SOM due to supply. Analyse similar property types for accurate insights.
• Neglecting Relisting: Some properties are relisted to reset their DOM, which can artificially inflate SOM.
• Missing Market Context: SOM alone doesn’t give the full picture; always consider it with other indicators, like Days on Market and price trends.
• Missing Hidden Stock: Off-market listings and inventory withdrawn but owners still want to sell won’t show up in SOM so opportunities lie in these areas.

Examples of Stock on Market in Action

Case Study 1: Buying in a Declining SOM Market

A Melbourne investor observed a consistent drop in SOM in a specific suburb over six months. Despite a high initial SOM of 2.5%, it gradually declined to 1.5%, signalling increasing demand.

Strategy:

• Tracked SOM weekly to confirm the trend.
• Monitored Days on Market, which also showed reductions, indicating quick sales.

Outcome:

• Purchased a property at a fair price during low SOM.
• Benefited from rising property values as demand continued to grow post-purchase.

Case Study 2: Avoiding Oversupply with High SOM

A Brisbane developer tracked SOM across similar apartment developments and noticed a spike to 3.5% in a specific area, signalling an oversupplied market.

Strategy:

• Paused plans to develop additional apartments in that area.
• Reinvested in a neighbouring suburb with a stable SOM of 1.5%.

Outcome:

• Avoided a potentially unprofitable project in an oversupplied market.
• Experienced quicker sales and higher profitability in the chosen suburb.

Case Study 3: Market Timing Success

An investor noticed rising stock levels in a blue-chip suburb:

The Strategy:

• Tracked 6 months of increasing stock levels.
• Monitored time on market increasing.
• Analysed price adjustments of comparable properties.

The Action:

1. Created a shortlist of properties in oversupplied segments
2. Targeted properties listed over 45 days
3. Used stock level data in price negotiations
4. Secured property at 8% below initial asking price

The Outcome:

• Purchased below market value.
• Property rented quickly due to realistic purchase price.
• Achieved above-average rental yield.

Case Study 4: Development Timing

A townhouse developer used stock levels to time their project:

The Analysis:

• Monitored existing stock levels (SOM)
• Tracked competitor project releases.
• Analysed absorption rates through stock levels and if they were rising or falling over this period.

The Strategy:

1. They delayed launch until competing stock was reduced
2. They staged releases based on absorption rates
3. They also adjusted pricing based on available stock.

The Outcome:

• Achieved premium prices.
• Maintained steady sales rate.
• Reduced marketing costs

8. Related Metrics to Stock on Market

Stock on Market is closely related to other market indicators, each providing additional context:

Days on Market (DOM):

• Higher SOM often correlates with longer DOM, indicating a buyer’s market.
• Low SOM often means shorter DOM and a sellers’ market.
• Use both to assess market shifts.

Auction Clearance Rates:

• Low auction rates alongside high SOM suggest declining buyer interest, an indicator of market softening.

Vendor Discounting:

• A high SOM often requires sellers to offer discounts to attract buyers, a potential opportunity for negotiators.

Price Trends Correlation:

• Rising stock often precedes price adjustments.
• Falling stock may indicate future price growth.
• Monitor both for market timing.

9. Market Cycle Behaviour

Growth Phase:

• Declining stock levels
• Quick absorption of new listings
• Strong competition for listed properties

Peak Market:

• Stock levels begin to rise.
• New listings increase.
• Buyer selectivity emerges.

Declining Market:

• Rising stock levels
• Slow absorption rates
• Increasing competition among sellers

 Recovery Phase:

• Stock levels stabilizing.
• Absorption rates improving
• Market balance returning

Action Steps for Stock on Market Analysis

Data Tracking:

• Monitor weekly stock level changes.
• Track new listings vs total stock.
• Record absorption rates.

 Market Analysis:

• Compare current stock to historical averages.
• Analyse stock by property type
• Monitor seasonal patterns.

Strategy Implementation:

• Set stock level triggers for action.
• Create property type watchlists.
• Build agent relationships for early listing alerts.
• Track properties that have been on the market longer without price changes.

Stock on Market provides crucial insights into market supply dynamics and potential opportunities. By understanding and correctly interpreting this metric alongside others, investors can make more informed decisions and improve their investment outcomes. Regular monitoring and analysis of stock levels should be a fundamental part of any property investor’s strategy.

Resources to Find Stock on Market Data

• CoreLogic Property Data: Offers comprehensive SOM metrics across various Australian markets. CoreLogic: www.corelogic.com.au
• Domain and Realestate.com.au Insights: Provide localized SOM data for specific suburbs and cities. Domain Research: www.domain.com.au/research
• REIA Market Reports: Industry-backed insights into SOM and other market indicators. REA Insights: www.rea-group.com/insights
• SQM Research: Publishes detailed reports on SOM and related property data, including supply trends across Australia. SQM Research: www.sqmresearch.com.au

Tips for Beginners on How to Use SOM Effectively

Use SOM Over Time

If you are just beginning your Metrics journey, you can start with measuring SOM in a monthly or quarterly period. Start and record, then track and update. It’s not until hindsight that you can get understanding of indicators of market movement but start somewhere and learn as you go. SOM can provide a clear picture of demand trends, especially in highly volatile or seasonal markets that, unless you are tracking them, you may not notice.

Comparing SOM Across Regions:

I recommend to clients to do a “cluster” of suburbs they want to track. This is an area of 3-4 suburbs close to each other you might be interested investing or buying in. You can then compare SOM in different areas to spot growth markets and opportunities. You can then compare a number of “cluster areas” to see the difference in statistics. This gives good evidence on how different areas are tracking by using statistics over a period.

In this post, we have highlighted that Stock On Market can greatly enhance investment strategies by providing clear indicators of market health, buyer demand, and future potential. Whether you’re a beginner investor or an experienced homeowner, including SOM as part of your market analysis toolkit will help you make more informed, strategic property investment decisions.

As a crucial metric in property analysis, it complements other indicators like Days on Market, helping to build a well-rounded view of real estate opportunities.

For more on mastering property investment or homebuyer choice, check out our related posts.

Happy Property Hunting!

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