10 Suburbs Everyone Seems to Want...and why they shouldn't
By the very definition, there are suburbs faring much better than the market average and there are others doing much worse. The big question is how do we find these top suburbs that everyone wants to invest or live in so we can enjoy natural, market driven capital growth?
Often the conversation about where to invest begins with where the demand is. Realestate.com.au (RE) may have the answer in their latest Top 10 Most In Demand Suburbs published in their latest “Property Outlook” report for January 2019.
Suburbs on the list above were ranked by the number of searches per property made by visitors to realestate.com.au The idea being search volume equals the level of demand in a location.
The report says nothing about the corresponding supply of property on the market to meet this demand. If demand is very high but the corresponding supply is even higher, then these “in demand” locations could also be a “no go zone” i.e. supply exceeds this high demand.
Middle Park, VIC was rated as Australia's most in demand suburb for both houses and units based on 2,848 visits per property compared to the VIC state average of 873 visits per property.
The important questions that follow this report are:
- Is demand trending upwards based on the number of searches?
- Is supply limited to meet this demand?
Online Search Interest (demand) for Middle Park
When I look at the Online Search Interest (OSI) indicator on Boomscore, which is similar to RE’s online searches but with one important difference: Boomscore’s OSI estimates the number of people searching per property, not just the number of searches per property. Some people search the same property many times on the portals so we try to distinguish between search volume and number of people searching.
When we map search volume for Middle Park, it's clearly trending in the wrong direction. It might be good today but at what point, looking at the trend line, will Middle Park be a no go zone?
Why is this important?
The number of people visiting each property in Middle Park has steadily declined from 475 people in May 2017 to 353 over this two year period. Sure, it's still better than the Vic state average of 113 people searching in Middle Park but is it really the BEST suburb to include on website searches alone?
SOM% (supply) for Middle Park
When we look at current property listings as a percentage of all properties that exist in Middle Park - i.e. the stock on market percentage or SOM% - then we can see that stock levels are low and trending upwards slightly.
But if stock levels remain the same while demand is dropping then one can assume that prices may start to drop. I wouldn’t add Middle Park to my “in demand” suburb list. What I want are suburbs with high and growing demand PLUS low and dropping supply:
Demand to Supply Ratio
Boomscore is a measure of the demand to supply ratio for 15,000 + suburbs, further split into Units and House. That's 30,000+ micro markets to choose from. The greater a suburbs Boomscore, the greater the ratio of demand to supply is for the location and therefore the greater chance of price increases soon.
Top 10 in demand suburbs by demand to supply ratio
By comparing all 15,000+ suburbs on not one but eight property market indicators of both supply and demand, we’re able to get a much more accurate picture of a suburbs capital growth potential.
In 3 clicks, boomscore filtered out 14,990+ suburbs leaving me with 10 suburbs that have the highest ratio of demand to supply. You can see why these suburbs made the list when you look at their strong reading on all eight indicators and not just the number of website searches.
The suburbs in the list above are rank-ordered by their summary Boomscore and you’ll notice Merrick North, Vic has the highest number of online searches on the list yet it’s only ranked 9th for capital growth potential. West Hobart, on the other hand, has only 392 searches per person yet it sits at the top of the list.
These 10 suburbs stack up better than over 14,000 suburbs across all eight market indicators. Not just 'number of online searches'.
The OSI indicator is not the sole nor best indication of demand when compared to the other market indicators used in combination in Boomscore. As a result, it is given a lower weighting in the overall calculation of the Score.
Merricks North may have more online searches compared to our top ranking West Hobart but it also has quite a few more properties for sale as measured by the stock on market percentage (SOM%) indicator:
- 2.14% of Merricks North properties are for sale whereas only;
- 1.08% of Hobart West properties are for sale.
Not a big percentage, but a big difference when assessing potential supply.
Based on these two stats alone, West Hobart has a higher ratio of demand (online searches) to supply (SOM%). This means there are more people showing an active interest in West Hobart than Merricks North relative to the number of properties available for purchase.
It’s this ratio of demand to supply that is more important than any one demand or supply indicator used in isolation.
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Property prices in West Hobart are also more affordable than Merricks North which means there is potentially a larger pool of investors in the West Hobart median price range. Maybe there has also been some growth in West Hobart’s population. Could there be new infrastructure or jobs in that market that has impacted demand?
It doesn’t matter much because all 8 indicators together act as a good proxy for demand and supply and therefore calculating the ratio of demand to supply becomes much easier to automate using big data algorithms (Boomscore).
West Hobart is one of only 5 suburbs in the entire country with a Boomscore of 82/100. That’s puts it in a unique club of only 0.0003% of all suburbs with the best possible reading on all eight supply-demand indicators.
And as we can see from the Boomscore chart below, the demand to supply ratio for West Hobart is also growing meaning there is relatively less property available to meet the corresponding demand. This trend means more than just a high Boomscore at one point in time: demand is seriously outpacing supply.
Obviously you should never rely on the data alone for an investment decision. Data can be very powerful for comparing various location’s, side-by-side, without having to manually process huge amounts of information in your research. But always verify and validate the data at source* with additional on-the-ground research. Remember to ask questions of local experts to see if the data corresponds the local market ‘story’.
*Boomscore gets its source data from various public sources including the major property portals. It then cleans the data before combining the data for scoring purposes.
The final wrap up.
The solid data reading above for West Hobart also allows us to ask some good questions of the local agents or anyone selling property there:
- Why are properties selling in 43 days in West Hobart? Is this likely to continue?
- Why are only 1% of rental properties vacant (a balanced market is around 3%)?
- Are rents increasing as a result of the tight renters market (38% of people rent in West Hobart)
- Are landlords getting a premium for properties sold with these low vacancy rates?
- Why are 100% of auctioned properties selling on the day?
- Is the rolling 12 month vendor discount of -14% changing?
One thing for sure, you’ll quickly learn which of your advisors or estate agents understand what’s happening in their markets when you refer back to the hard data above. It’s so simple but the insights you will get by focussing your questions on the facts alone will make all the difference.
If they don’t understand the data, point them to Boomscore and then move on.
Remember: check all the market indicators supporting a location’s investment potential. One or two published indicators alone in the various top suburb reports do not give you the full story and can be very misleading.
And for those prospective investors worrying about newspaper headlines, the pool of suburbs ripe for investment has merely shrunk but not disappeared. Savvy investors use Boomscore to custom search their own “boom markets” that match their strategy (cash flow, growth, development etc) and then use the negative market sentiment to their advantage when negotiating.
Consider the following... of all 15,000+ suburbs rated by Boomscore:
- 5,572 suburbs are rated a “No Go Zone”. Thousands more than 3 years ago.
- 5,756 suburbs are areas to “Be Careful”
- 3,260 suburbs are “Healthy” or mostly balanced so prices are unlikely to go anywhere.
- 842 suburbs are entering an “Upswing” with prices likely to increase soon.
- 13 suburbs are rated as having “Hotspot Potential” with big price hikes likely.
With 842 suburbs entering an “Upswing” phase and only 13 suburbs rated as “Hotspot Potential”, I know where I’ll focus my research.
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Author: Michael Fuller
Michael created Boomscore to identify the country’s hottest investment suburbs so you don't have to spend countless hours searching, sorting and analysing vast amounts of property information. Michael also connects investors with highly profitable, private market investment opportunities with an exceptional track record so far.
Michael can be contacted on email@example.com