How to Spot a Surging Suburb
For much of the last decade, investors and speculators alike have spent a great deal of energy trying to determine which factors most influence price in suburbs throughout Australia. In Sydney in particular, where property prices have soared to historic highs, it’s been fervent.
So for a first time investor or for someone looking to buy a new home, one of the first questions you might have is about how to spot a suburb that is just starting to surge or may be in the near future. Here are some of the factors to look for that might impact price in the very near future.
Decreases in Listing Time and Discounts
The biggest factor affecting price in any market is demand. If more people want to own property or live in a given suburb, the prices will rise. This is most often indicated by two things:
- Time on the market
- Discounts offered
If homes are selling faster and with fewer incentives, the demand is growing and it could be just the tip of the iceberg. This type of action tends to snowball quickly when demand is on the rise.
The Impact of Tenants on Vacancy and Yield
Another major factor in a suburb on the rise is a shift in rental demand. When a location is starting to become more popular, the first people to move in are renters – often younger or more mobile individuals. This means the vacancy rate drops and the demand won’t be met. On average, you can expect a 3% vacancy rate in a balanced, healthy market. When it gets lower than this, the demand for those units is growing.
At the same time, as renter demand increases, so too do prices. As a result, yield may start to increase. The more people who want to live somewhere, the more landlords will consider raising rent and increasing their return. That increased yield will signal to investors that investment is opportune and the demand will grow further.
Online Interest and Search Trends
The Internet adds a whole new wrinkle to the measure of property and suburb demand. It is now possible to measure the search traffic and general interest of the population in a topic using Google Trends or a keyword research tool (including Google’s). When the number of searches for a particular suburb start to increase, especially as relate to real estate terms like “for sale” or “homes”, you can be sure demand is growing.
Adjacent “Over” Performance
What might look like over performance in an adjacent suburb can quickly start to become the norm if it sustains for several months or even years without change in the suburb you are looking at. Eventually it means there is an underperformance and the market will correct. Adjacency to a hot suburb can drive prices up in nearby locations, especially if the amenities that made those prices rise are accessible from the suburb in question.
Measure Carefully but Be Ready to Take Action
No single metric will tell you when a suburb is about to surge in value, but by watching all of the factors listed above – from tenant behaviors to the clearance rate and availability of properties for sale in the suburb – you can get a sense of which direction demand is moving. By paying close attention, you’ll be ready to take action when a shift in value occurs and a suburb starts to rise.