Hedonic Indices

Like any market, property prices are a consequence of supply and demand. For many months now, we’ve heard a similar refrain concerning the ‘chronic undersupply’ of housing across the market. Housing Australia has even forecast a national shortfall of 100,000 homes in just four years’ time. This being true, how is it possible for Melbourne to be oversupplied with property? Based on CoreLogic figures, Melbourne saw 90,000 total property listings across 2023, alongside just 81,203 total sales.

You may have noticed that the narrative surrounding interest rates has begun to shift slightly. For the first few months of this year, the overwhelming consensus was that we’d see some action on rate cuts within the latter half of 2024. We even released an article back on the 11th of March, summarising and commenting upon the big four banks’ predictions for interest rates.

There is an endless variety of metrics used to explain the property market. Vacancy rates, building approvals, population growth, annual price growth – the list goes on. All with varying popularity, each of these measures help to describe supply and demand in different ways, which in turn helps us to forecast the direction of a market. Of course, prices are created by that intersection of supply and demand (the fancy term for this mechanism is ‘price discovery’).

In last week’s article, we explored the concept of liquidity within the property market – why it’s important to consider, and what the risks are for those who don’t. This week, we’re getting a bit more practical. How should you account for liquidity when purchasing an investment property? Understanding liquidity and its impact is crucial for making informed investment decisions and optimizing returns, especially in the inherently slow-moving property market.