Why identifying market trend is important - Part 3

In the preceding article, we have examined the application of growth percentage for establishing the historical market trend from past to present. However to correctly identify future market trend, we require a collection of additional indicators that could help us to predict the direction of both supply and demand factors in the housing market.

The other notable elements of historical data to reflect on are:

1. Median Price

Compare two suburbs X and Y with similar growth percentage, let us say 10%, however with different median prices of $550K and $660K respectively. The median price has increased by $60K in suburb X and by $50K in suburb Y within the same period. This indicates that generally suburbs with a higher median price also possess a greater prospect of capital gains in value, assuming all things being equal.

[ Blogger note: It is important to determine if the median price growth is largely fuelled by stocks from new developments. As new developments typically sell at a premium cost, this suggests the median price of the subject area can be hugely biased. ]

2. Median Weekly Rent

If the median price is to measure the potential of capital growth, then the median weekly rent is to measure the potential of yield. The median weekly rent figure by itself does not represent anything of great significance, however the composition of both median price and median weekly rent allows us to identify property with a quality balance between capital growth and yield which is such a rarity.

3. Rental Absorption Rate

This indicator could be used to assess the likelihood of an investment property to achieving the expected rental yield. For short-term property investors where the capitalisation rate is the norm, it is therefore prudent only to consider property with both strong median weekly rent and exceedingly high rental absorption rate.

We will continue our discussion and analysis on this subject in the next article.

Stay connected with Steven Steven Property for update on our blog. Take care for now.

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