Picking a winning property investment during the spring selling season

After the cold months of winter, spring is approaching.

Each year around Australia, property markets emerge from their slumber and jump back to life.

Up to a third of all real estate transactions take place between the months of August and November. Family homes in particular take advantage of the blooming gardens and lift in mood that better weather brings.

And now the guessing game begins: will this spring see a surge in sale prices or will the party fall flat?

If you’re trying to figure out whether this spring is ripe for a boom, here are the factors to consider.

Property market fundamentals

2024 has been a year of very different outcomes around the country.

While Perth, Adelaide and Brisbane have had standout years, Sydney has come off the boil, and Melbourne, Hobart, Canberra and Darwin have struggled. The combined capitals growth rate is 7.9 per cent over the past 12 months, while for regions it is 6.9 per cent.

It’s important then not to look at national home prices and assume they tell you that much about fundamentals like supply and demand or affordability in your home state or territory.

Then there’s the other big question: what is likely to happen to interest rates. The much heralded rate cut reprieve has failed to materialise and chances are we are set for one fall at most in the next six months, or possibly none at all.

Interest rates impact directly on affordability for three quarters of the market.

Real estate herd mentality

One of the best ways to see if we’re set for a boom is by watching what happens at auctions, especially in Sydney and Melbourne, where they are more prevalent.

The agents’ rule of thumb is that attendance at auctions is a big clue to what’s happening in the market.

Where you see most auctions draw in a crowd of 40 or more, then property is in for a solid spring. When average attendance numbers start hitting the 80 mark, it’s set for a boom.

2024’s auctions thus far show us an interesting picture of strong demand in some areas and patchy interest in others.

CoreLogic’s data shows us Sydney’s auction numbers have come off marginally but still look solid. The highest clearances are in the Inner West (81.6 per cent) Sutherland (80 per cent), North Sydney and Hornsby (76.3 per cent) – which we can describe as fairly upmarket areas.

In Melbourne, it’s the Outer East (80.4 per cent), South East (78.7 per cent) and Inner South (76.3 per cent) leading the way. The first two areas are around the metro’s median price, suggesting it’s everyday families doing the heavy lifting.

We can see the combined effect in the chart above that shows clearances settling around the 65 per cent mark – the point where power between buyers and sellers is evenly balanced.

If we are going to see a boom, those clearance numbers will need to lift along with the crowds at auctions. If the clearance rate sinks with the increase in supply, expect property prices to stall.

Watch the real estate agents

Good agents are highly aware of the prevailing sentiment and by watching their actions, you can get a good feel for how the market is travelling.

When the market is heating up, agents will not be pushing people to make early offers. That’s because they’re confident they will be able to sell on auction day or if under private treaty, that they’re fielding several genuine offers.

On the other hand, if they are soliciting early offers it’s a pretty sure sign they’re not reliably confident of a sale. So, they want offers to take to the vendor to ‘condition’ them: evidence of where pricing of their property is supported by the market.

Property market metrics

In the auction-centric cities, rising clearances off the back of higher listings are a good a sign, but what about elsewhere?

One great metric is a decrease in average selling time, or days on market. The shorter the time, the more likely buyers are overwhelming the number of homes listed for sale.

The best way to figure out where average selling times are headed is by looking at the total number of listings trend.

Here I have provided the listings information by SQM Research and what a picture it tells.

As we can see, Brisbane’s stellar year has been built on a big reduction in the number of properties hitting the market, leaving buyers scrambling to outbid each other.

Now let’s look at Melbourne and here we can see that listings, while not at a long term high, are up substantially on the last few years.

The property cycle tells all

The property market moves in a cycle and the best indicator of where the cycle is at comes from looking at the volumes of first home buyers and investors.

When the market hits a cyclical low, we see first home buyer numbers jumping up.

When that increase starts to feed into improved sale prices, investors take heart and follow first timers into the market.

As you can see here, first home buyers were out and about during 2020, then eased off, then started rising again before stalling.

Right on cue, investors took note and started to jump back into the fray, with an increase starting in 2023 and building momentum.

ABS figures show new lending to investors rose 29.5 per cent in the year to May, with first-home buyers up 12.2 per cent, but with a slowing momentum.

Springing a final judgement

So, will spring be the start of another great boom? Sorry folks, the jury is still out.

While many of the conditions for a boom are apparent, there’s one that isn’t. That’s interest rates.

If we see rates fall in November - the earliest it can happen - that will act as a starting gun for home buyers. And while broad investor sentiment has improved, it’s still not at the heady days of the 2010s.

In the meantime, expect the market to keep its current trends, with potentially a decrease in growth in the cities that have been faring well this year and a return of good regional cities to solid growth.

But if we see a rolling set of interest rate cuts, the conditions are there for a substantial uplift.