Top Indicators To Look Out For To Understand The Real Estat Market

13/02/2012 9:10 am

Perhaps the most significant portion of the estate that the average person accumulates in a life is the equity created through the ownership of their home. Real estate provides the framework of an economy and more importantly a community and in turn the economic base of a community influences the value of real estate.

The value of land rises when supply becomes limited in locations where housing is in demand. Financing rates fluctuate according to the ease of access to funding and is crucial to determine who can afford housing.

Real estate contributes to the economy through taxations. Real estate provides a monetary basis upon which services are constructed, provided and maintained. Therefore, the impact of real estate upon the economy of a region is vast. At the national level, real estate accounts for a substantial portion of Australia’s Gross National Product (GNP).

Our system of free enterprise is based on the belief that the more an individual, group or nation produces the more is received. An open market system allows consumers to chose what they wish to purchase and the producers to compete to supply those needs and wants. The economic cycle of an area influences the real estate industry. Economic conditions of the country play a crucial part in the real estate cycle. Fluctuations in real estate value can be traced back to market conditions. When demand and need are carefully anticipated and balanced with supply, a favorable real estate market will exist.

The value of real estate is also influence by:

  • Governments who enact laws and policies, which control our legal rights in relation to real estate and therefore how land may be used and developed.
  • Location is a crucial factor in the value of land
  • The productivity of land also determines its value.

Due to the strong connection between economic conditions and real estate market conditions real estate investors and developers look to key economic indicators to influence their real estate investment decisions, some of these indicators include:

Auction clearance rates: essentially auction clearance rates provide a snapshot of how demand and supply in the auction market is behaving and is therefore a leading indicator as to how the whole market is expected to perform.

Building Approvals: The ABS provides monthly data on the volume of building work approved based on building permits issued by consent authorities. Building approval statistics provides us with an indication of both the future supply levels of housing and market sentiment.

Housing Finance: The volume of housing finance commitments allows us to gaining an insight into the level of activity in the real estate market. The data can be broken down into distinct segments in order for us to ascertain which groups are active in the market including, first home buyers, owner occupiers, investors, refinances and new dwellings.

House Price Index: measures the inflation or deflation of the price of houses over a period of time. The indexes describe the change in prices between a specific period and a base period, allowing comparisons of price movements between time periods and also between geographical areas.

Developers and real estate investors should keep a look out for information on these key indicators to gain a good understanding of the state of the real estate market in order to make informed decisions. For great insight into the key market indicators check out: