Market View: Is it possible to predict price growth in suburbs?

 

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Is it possible to predict price growth in suburbs or should I just consult a Magic 8 ball?

When trying to predict the next unexpected property hotspot, there is no Magic 8 Ball to ask. Sometimes I feel many think I am one. Fortunately I have never been shaken for answers and have a vocabulary of more than 20 phrases. I like to think I offer more than the one-time advice of a game.

So how do we predict price growth? The days are gone when a mere whiff of a mining boom resulted in an asset price explosion. Picking the next hotspot is a harder task. No matter how challenging I won’t answer “reply hazy try again” like the Magic 8 Ball.

The price point of any goods or asset is equally determined by demand and supply. The catastrophic cyclone Debbie is an extreme recent example. The destruction pathway through large parcels of farming land will impact produce supply pipelines, as a result shoppers could be forced to fork out more at the supermarket. This imbalance tends to be short-term until the following growing season.

In housing markets the balance is not as simple. The geographical area of a suburb is fixed, if no build capacity remains but buyers are fighting to become residents, prices are likely to keep climbing. Don’t forget the ripple effect, buyer demand and price growth could flow out to neighbouring suburbs.

My tip is to seek areas that have low supply and high demand – it is always a win-win situation. Spotting this particular balance before other investors is the tricky part.

Many will cringe at the thought of analysing data however this is the time it will be helpful. Areas experiencing rising rental yields can indicate popularity amongst tenants. Where tenants flock, investors will follow. Suburb demographics can also help to determine high demand areas.

Population growth hubs will not solely push up prices but combined with an area of low supply – bingo. Escalating house prices are more likely to ensue if the area is also experiencing rising incomes.

Melbourne will be the leading population hub in less than two decades based on current projections. As the population grows, access to roads, schools, employment hubs and public transport will become strained. A commitment to delivering sound infrastructure in order to meet the challenges emerging from a rapidly growing population is essential. Substantial infrastructure promises from both sides of politics are optimistic to help relieve pressure on infrastructure.

Often speculative spikes in prices occur at the time of an infrastructure announcement. Only when a project is completed can the true price impact be deduced. It is imperative to make a sound judgment based on a variety of factors. Consider the extent of surrounding development and ongoing supply pipeline that could put a negative pressure on price. Also consider the economic drivers that will pull residents to the area, this will continue to help maintain housing demand.

In short the secrets to housing markets are formulated by an educated guess.

Dr Nicola Powell is a data scientist at Domain Group.