Power of data for intelligent investing

As a professional Property Investment Advisor to investors, I continually monitor the latest trends and developments in the Australian housing market. The CoreLogic Hedonic Home Value Index (HVI) is one of the most reliable and comprehensive sources of information on the performance and outlook of the residential property sector. In this article, I will share some of the key takeaways from the HVI report for February 2024 and how you can use this data to gain insight and understanding of the market.

A subtle re-acceleration in value growth

The HVI report shows that housing values rose broadly in February, with the national index up 0.6% over the month. This is the most substantial monthly gain since October last year, with a 20-basis point acceleration from the 0.4% increase in January. Each capital city and rest-of-state region recorded a lift in values over the month, except Hobart, where the market fell -0.3%.

The re-acceleration in value growth reflects a constant shortcoming between supply and demand, which varies in magnitude across different cities and regions. CoreLogic’s research director, Tim Lawless, says, "The ongoing rise in housing values reflects a persistent imbalance between supply and demand, which varies in magnitude across our cities and regions."

The HVI report also reveals a high level of diversity in market conditions across the country, with some regions showing a substantially higher growth rate than others. Perth stands out as the best performer, with a 1.8% monthly increase and an 18.3% annual increase in dwelling values. Adelaide (+1.1%), Brisbane (+0.9%) and the regional areas of SA (+1.1%), WA and Queensland (both +1.0%) also show a consistently high rate of capital growth month-to-month.

On the other hand, Hobart is the only market where values have declined over the month and the year, down -0.3% and -0.6%, respectively. Hobart’s housing market has been losing steam since it peaked in March 2022 and is now -12.2% below its previous high. Tasmania’s housing affordability has deteriorated significantly after a period of overperformance between 2017 and 2022, and the latest population data suggests a decline in interstate migration, which would also dampen demand.

A boost in confidence and expectations of rate cuts

The HVI report also suggests early signs of a boost in housing confidence as inflation eases and expectations for a rate cut, or cuts, later this year firm up. Lawless notes, "Potentially, we are seeing some early signs of a boost to housing confidence as inflation eases and expectations for a rate cut, or cuts, later this year firm up.”

The report cites a 6.2% lift in the consumer sentiment index for February, taking the reading to the highest level since June 2022. Although sentiment remains pessimistic, it indicates households' greater willingness and ability to make decisions around significant financial commitments, such as property purchases.

The report also points to a bounce back in auction clearance rates, which averaged in the high 60% range through February. This signals a better fit between buyer and seller pricing expectations and a higher level of competition in the market. Lawless observes, "Auction results and sentiment have shown a historically strong relationship with housing trends. The rise in clearance rates from the mid-50% range late last year to the high 60% range in February points to a better fit between buyer and seller pricing expectations. A rise in sentiment suggests households will have a better ability to make decisions around large financial commitments, like a property purchase."

However, the report also cautions that the pace of gains is unlikely to rebound significantly, as several downside factors could still limit value growth over the near term. These include affordability constraints, rising unemployment, a slowdown in household savings rates and a cautious lending environment. Lawless warns, "It’s hard to see a significant rebound in values shaping up given downside factors. Affordability constraints, rising unemployment, a slowdown in the household savings rate and a cautious lending environment are all factors likely to keep a lid on value growth over the near term."

How to use this data for intelligent investing

As an investor, you can use this data to identify the opportunities and risks in the housing market and to make informed decisions based on current and projected trends. Here are some tips on how to leverage the HVI report for intelligent investing:

Look for markets that offer a combination of solid capital growth, high rental yields and low vacancy rates. These high-demand and low-supply indicators could translate into higher returns and lower risks. According to the HVI report, some markets that fit this profile are Perth, Brisbane, Adelaide and the regional areas of SA, WA and Queensland.

Avoid markets that are showing signs of weakness, such as declining values, low rental growth, high vacancy rates and poor affordability. These are low-demand and high-supply indicators, which could result in lower returns and higher risks. According to the HVI report, some markets that fit this profile are Hobart, Darwin and Canberra.

Diversify your portfolio across different regions, property types and price segments. This can help you reduce your exposure to market volatility and capture the benefits of varying market cycles. The HVI report shows a high level of diversity in market conditions across the country and that different regions, property types and price segments are performing differently. By diversifying your portfolio, you can balance your risk and return profile and take advantage of the opportunities in different markets.

Monitor the market closely and regularly and be ready to adjust your strategy according to the changing conditions. The HVI report is updated monthly and provides a timely and comprehensive overview of the housing market performance and outlook. By keeping track of the latest data and trends, you can stay on top of the market movements and be prepared to act swiftly and decisively when opportunities or challenges arise.

In conclusion, the power of informed decision-making in property investment cannot be overstated. The HVI report and other vital data sources provide invaluable insights for your investment strategy. However, interpreting and applying this data effectively requires a deep understanding of the market dynamics and trends. This is where the expertise of a professional property investment advisor becomes crucial.

An ASPIRE Property Advisor Network Accredited Advisor can help you navigate the complexities of the market, make sense of the data and align your investment decisions with your financial goals. Remember, the most successful investors are not those who have access to the most information but those who know how to use it effectively.

Do not hesitate to reach out (1300 710 933) to be connected with an advisor for guidance or property investment advice. With an Advisor, you can leverage data to make intelligent, confident and profitable property investment decisions. Your journey towards successful property investment starts anytime. Embark on your property investment journey together with a professional Advisor.

References: corelogic.com.au