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Follow trendlines, not headlines

Michael Matusik shares his tips on how to ignore the headlines and assess what is really going on in the housing market.

Property

Follow trendlines, not headlines

Michael Matusik shares his tips on how to ignore the headlines and assess what is really going on in the housing market.

Now that the summer holidays are over and most of us are back on the tools, it might be best to start the batting this year with an opinion piece.

In turbulent circumstances it often pays dividends to set the appropriate tone upfront.

The Australian housing market – as seen through the news and other media – will mostly be a depressing place in 2019. And if not disheartening, then contradictory at best.

The headlines will tell us about falling prices; rising costs; declining sales; overbuilding; rising supply and, of course, the impact of the banking royal commission and the pending federal election.

But the media (and especially much of the property-related commentary) even at its most accurate is bound to paint a distorted picture of reality.

At its core, the ‘news’ is about things that happen and/or what data/study has been released and not about things that don’t happen, such as most of us getting on with our lives; buying and selling homes (often for a capital gain) and/or new housing projects getting developed.

Adding to the gloom is the ethos of the mainstream media, such as newspapers, TV, national broadcasters and national news websites, in which reporting a failure is deemed a professional duty, whereas broadcasting success is considered ‘public relations’.

But to get an accurate picture of the world you have to ‘count’.  You also need to take a long view and not rely on the latest statistic or number. In short you need to go beyond the headlines and follow trendlines.

True past performance is no guarantee of future results.  But history – and in particular the property market – is cyclical.

So, what really matters?  What trendlines count?  What should be ignored?  How does one assess what is really going on in your relevant housing market?

Below is my list of things I think matter. They apply to all geographic areas; housing types and both new digs and resales. A deep understanding of these trendlines cancel out any headline.

Ask yourself these 5 questions:

  1. What is the local time? That is to say, where is the relevant local market and housing product positioned on the property clock. The action taken depends on the time. While the property industry doesn’t like me saying this, sometimes the best course of action is to do nothing at all.
  2. How deep is the market? What is the current and future level of relevant housing demand? Here we are counting sales by price group; product type and dwelling characteristics plus the underlying need to supply more housing.
  3. What is the current and likely future level of housing supply? It is best to include supply on several levels including resales; new developments and also dwellings available
    to rent.
  4. Who will buy or rent the dwelling? Here we suggest breaking the existing and future market into either generic demand groups (first-homebuyers, upgraders and downsizers for example) or lifecycle segments (such as young couples no children, families with young children and older lone persons households). Regardless of method, is the local ‘target market’ big enough to help you succeed? It is often best to reverse this analysis and determine the size and direction of the relevant local housing market segments first, and then, deliver appropriate product to them rather than trying to ram your predetermined ‘square’ product into a ‘round’ hole. The ramrod approach can work when things are going well but rarely when things are more cactus.
  1. What makes this property and location special? Consider the things that really matter, like local employment; income levels; schools; transport and affordability. The hardcore stuff, not the fluff.

And finally, it often pays to do a ‘Denzel Washington’ and clarify your rationale to yourself like you were explaining it to a five-year-old.

For younger readers, watch the 1993 movie Philadelphia. It won several Oscars including best soundtrack by Bruce Springsteen.

In essence, this is what we do when we undertake a project advice commission or are employed to provide a housing market assessment/outlook.

Remember follow trendlines not headlines and ask the right questions.

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