John Lindeman, Author at Lindeman Reports

Posted on December 13, 2025December 13, 2025 by John Lindeman

The elephant in the property market

John Lindeman reveals an elephant that’s making its presence felt in some property markets and explains why it’s largely going unnoticed.

One of the main drivers of housing demand has the power to radically alter housing prices and rents, yet like an elephant in the room, it’s being ignored by most analysts and researchers.

The elephant is the movement of people from one State or Territory to another, which is called interstate migration.

The biggest changes to property markets are made when people move

People change housing demand and supply when they move, because we all need a place to live. When enough people move, they can dramatically alter housing prices and rents in the process.

Around three percent of our total population moves from one State or Territory to another each year, but as this graph shows, the percentages of interstate movers is significantly higher in Tasmania, the ACT and the Northern Territory.

Over 11% of the Northern Territory’s population are interstate movers

The large numbers of people moving in and out of the Northern Territory each year is largely due to the presence of the huge army, navy and RAAF bases and military training facilities located there to safeguard our northern borders.

The recent strengthening of our defence capabilities in the Northern Territory has led to an increase in the number of defence personnel and their relocation in or out of Darwin, causing the current housing shortage and property market boom. Although the Northern Territory has a small net annual interstate migration figure, this hides the fact that over 30,000 people move in or out of the Territory each year. With such massive numbers of people moving, why is this phenomenon going unnoticed?

The elephant is hidden from our view

The answer is that many analysts and economists use net interstate migration numbers, which is the net increase or decrease in the population of a State or Territory from interstate movements. This is very different to the total numbers of people arriving and leaving, which is what’s actually occurring.

For example Canberra’s net interstate migration fall last year was only 1,300 people, but 21,500 residents left the ACT while another 20,200 people arrived, which means that over eight percent of Canberra’s population moved in or out of the Territory.

Young people are moving to Canberra from other States

Why is this important? Because the people arriving very often have different housing needs from those leaving. Most of Canberra’s arrivals are young professionals seeking work in the public service and creating demand for unit rentals, while many of those leaving are older residents retiring at the end of their careers and selling empty nests.

The impact that these movements are having on the Canberra housing market becomes clear when we compare the house price falls that are occurring in Canberra’s well established and dearer suburbs where older people are leaving, to the increases in weekly unit rents taking place in suburbs where younger people are arriving.

In fact, many of the otherwise unexplainable ways that housing markets perform becomes clear when we look more closely at who is moving interstate and why, rather than the net interstate migration figures.

Young people are leaving Tasmania for the mainland

There was a net natural increase of only 200 people in the entire State of Tasmania last year, while 15,000 people left for the mainland.

They were replaced by just 13,000 people moving to Tasmania, so it was only the 3,000 net overseas arrivals who kept the State’s population in growth.

On the face of it, these figures look terrible, with an interstate net migration drain of 2,000 people and a net increase in population of only 1,000, easily the lowest of any State or Territory.

However, the 15,000 people who move to the mainland each year are younger people in search of employment, education and lifestyle opportunities on the mainland. They leave family homes behind, creating empty bedrooms and empty nests, but not empty homes, so the housing supply doesn’t increase with their departure.

Most of the 13,000 people moving to Tasmania from the mainland, on the other hand, are older people motivated to retire there by the State’s low housing prices and milder climate. These cashed up downsizers create instant buyer demand.

So the interstate migration figures miss the elephant in the room because they don’t show us the impact of those departures and arrivals on housing supply and demand. These tell us that the rate of new housing supply is not keeping up with the demand and many locations are at the turning point.

This means that housing prices have the potential to boom, especially in the big population centres such as Hobart and Launceston and popular retiree destinations such as Devonport and Ulverstone.

Posted on May 27, 2025May 27, 2025 by John Lindeman

Racing into a rental crisis

Australia is experiencing a population boom, mostly from overseas arrivals, many of whom will be renters for some years. John Lindeman explains that as a result, we are facing a massive housing rental shortage, and asking rents will soon be skyrocketing.

Australia’s population growth rate is quite different from most other countries, as the graph shows. While other developed nations are experiencing very low growth rates, or even falling populations, ours is one of the highest in the world.

Most of our new residents are overseas arrivals and the increased consumer demand they create keeps our economy in growth.

This means that our Federal Government is forced to keep the welcome to Australia doors open, at least for the foreseeable future.

Our population is projected to grow at rapid rates

According to the Bureau of Statistics, during the last year Melbourne’s population grew by over 140,000 and Sydney’s by more than 100,000, while Perth and Brisbane each increased by around 70,000. The Bureau expects our population to reach thirty-three million by 2033.

Eighty percent of the forecast growth in population will be from overseas arrivals who require immediate housing when they resettle here – and most of them will be seeking rental accommodation in our big capital cities.

This is becoming a huge issue, because we are not building enough homes to accommodate our growing population.

The number of new dwelling completions is trending down

As the graph shows, the National Housing Accord target of 1.2 million homes in five years will not be sufficient to meet the expected demand for housing and that’s not even a commitment – it’s only an aspiration.

The actual rate of completions is falling, and PropTrack forecasts that this trend will continue.

Based on these trends, we will only be meeting around half of the demand for housing expected from population growth over the next five years.

Rents are about to dramatically increase

Most of the demand for housing over the next few years will be for rentals and this is likely to dramatically escalate.
This graph shows that the last two decades of moderate rent rises came to a sudden end after the Covid pandemic.
The opening of our international borders was accompanied by huge numbers of permanent overseas arrivals, and a massive lift in weekly rents.

Over the next few years, rents are certain to dramatically increase further, especially in the inner suburban areas of our major cities. This is good news for investors seeking high cash flow, but bad news for renters.

Posted on April 24, 2025April 24, 2025 by John Lindeman

Is Darwin about to boom, or will it be a bubble and bust?

Many investors and buyers agents are turning their attention to Darwin, and it’s little wonder, because Darwin has the lowest median house prices of any capital city and the highest rental yields. John Lindeman investigates whether Darwin is set to be the next boom city, or whether it could become a bubble and bust.

Greater Darwin, (which includes the twin city of Palmerston) has only 150,000 residents, making it the smallest capital city in Australia and it also has the lowest median dwelling prices. Until recently, there had been no price growth for over a decade, but the market is experiencing a remarkable turnaround, as this graph shows.

Over the last year, the number of sales has been rising strongly, while advertised listings have been rapidly falling. As a result, CoreLogic data shows that Darwin was the best performer of all our capital cities during the March Quarter, with price growth of 2.5% and the rate of growth is accelerating.

Will Darwin boom in the way that Perth and Adelaide have done?

Some experts predict that Darwin is set to boom, but is there genuine demand for more housing, or is the demand driven by speculative investors? A big clue to Darwin’s potential performance is the high interstate mobility of its population.

Twelve percent of the Northern Territory’s residents migrate to or from other States and Territories each year. That’s one in eight residents, which is much higher than in other jurisdictions. As the graph shows, only about three percent of Queensland’s population move interstate each year, and it’s even lower in the other mainland States. This high interstate movement gives Darwin’s housing market far more volatility than other capital cities.

Of even greater significance is the fact that in recent years the Territory’s interstate migration has been negative, with 4,000 more people moving out of the Territory to other States than those arriving.

Why are more people leaving for other States than arriving

According to the Australian Bureau of Statistics, Greater Darwin’s major industries of employment are in administration, health services and defense. Darwin plays a crucial role in Australia’s defense capabilities, being the location of RAAF Base Darwin, Robertson Barracks, and HMAS Coonawarra.

Large numbers of defense and support personnel were also stationed there during Operation Sovereign Borders and our military and peace keeping engagements in Afghanistan and the Middle East. With the winding down or ending of these operations, the numbers of defense personnel stationed in Darwin has fallen, causing the net interstate migration drain.

Only babies and overseas arrivals are keeping the Northern Territory’s population in growth, but the annual population growth rate of just 0.7% is the second lowest of all States and Territories.

There’s a strong link between interstate migration and housing prices

This interstate migration drain is significant, because as the graph shows, there’s a strong correlation between net interstate migration changes and housing price movements in Darwin.

Whenever the net interstate migration rate improved, as it did in 2012 and 2020, the increased demand for housing led to a rise in housing prices. But, when the net interstate migration rate fell, as in 2014 and 2021, the lower demand for housing caused a subsequent fall in housing prices.

Based on the current negative interstate migration trend, housing prices could be expected to continue falling, but as the graph also shows, this trend has temporarily been reversed by the massive buyer’s agent and investor buying spree which has recently pushed up prices.

This means that only those investors who get in and out of this market early will do well and it’s certainly not a long term investment opportunity. So how will we know when the turning point is on its way and it’s time to sell?

Rental demand is the key to Darwin’s future performance

With investors doing all the buying, the key to this market’s performance is rental demand, because nearly half of Darwin’s residents are renters, which is far higher than other capital cities.

The Rental Vacancy Rate is currently only 1.6%, indicating that there’s no need to panic, but the indicator to watch is the total number of advertised rental vacancies and according to REA, there are 313 advertised rental vacancies in Greater Darwin.

If too many investors buy property, advertised rental vacancies will quickly increase and savvy investors will take this as an early warning sign that Darwin’s turning point has arrived.

Posted on October 21, 2024April 24, 2025 by John Lindeman

Knowing the right time to sell

All property market booms eventually end, and so investors need to know when the time to consider selling has arrived. Property market expert, John Lindeman, explains which indicators reveal the right time to sell.

Property market analysts rely on many different indicators to look into the future and predict whether prices are likely to rise or fall. Some proudly advertise that they employ up to twenty five housing market fundamentals to make their forecasts, while others seem to rely only on gut feel, hearsay or intuition.

Here are the three most commonly used indicators, and John’s assessment of their usefulness to property owners.

Sale prices reveal past performance

Sale prices are obvious indicators of a market’s performance. If prices are falling, it’s time to get out, some experts tell you. But the issue with published sale prices is that they are not predicting the future, only revealing the past.

This table shows you the huge price growth that has occurred in four of the most affordable Perth suburbs over the last two years, and that the rate of growth actually increased in the last twelve months to October 2024.

Followers of strong past performance would have us believe that this price growth acceleration is a good indication of more growth to come.

Others will assure us that such high growth rates are unsustainable, and that the turning point could arrive at any time. The issue for investors is that we can’t tell from past performance whether more growth is on its way, or whether the market has reached its turning point and it’s time to sell.

The number of sales shows us changes in demand

It’s much more useful to look at the actual trend in the number of sales rather than past sale prices.

This is because decreasing sales indicate that buyer demand is slowing down and are a sign that prices could soon be following.

This table shows that the number of sales in the same four Perth suburbs over the three months to October 2034 has been declining.

While this may give property owners in those suburbs cause to think about selling, the problem is that sales alone do not provide a full picture because, like sale prices, they are based on past results. To look into the future we need to know potential buyer and seller intentions, which are indicated by changes in the number of listings.

The number of listings reveals changes in both demand and supply

If the number of houses or units listed for sale in a suburb increases, it tells us that buyer demand is falling or that more owners want to sell, or that both are occurring at the same time.

In those four Perth suburbs, we can see in this table that the number of properties listed in the last three months is rising.

The number of listings is called a leading indicator, because it points the way ahead. While the number of houses sold has been falling, the number of owners trying to sell by listing their houses on the market has been growing. If these trends continue, they could reach the turning point where prices will start to fall.

You can check the sales and listings trends for houses or units in any selected suburb to see which way they are moving. This will give you a much better indication of potential price changes than relying on past price performance.

Posted on September 16, 2024September 16, 2024 by John Lindeman

When the cure kills the patient

When germs attack our bodies, our immune system quickly goes into action to repel or destroy the invaders. And if all else fails, it raises our body temperature until the enemy has been destroyed. It’s very similar to how the RBA is fighting the disease of inflation with high interest rates.

Using higher temperatures to fight disease is a risky strategy, because there can only be one winner – either the disease is killed, or we die. In the same way, the RBA runs a risk that higher interest rates will kill the economy before inflation is brought down.

In fact, there is mounting evidence high interest rates are stifling the economy, with the latest ABS figures showing that our economy grew by just 0.2% in the June Quarter. The only reason that we are not already in recession is because of the huge numbers of overseas arrivals who are fuelling buyer demand. Put simply, each of us is spending less, but because more people are spending, our economy is still in growth. These migrants do, however, also create more demand for housing.

The rental shortage in inner urban areas is getting worse

New arrivals (at least initially) are nearly all renters, and because they prefer to rent in the high density inner urban areas of our major cities, asking rents and rental yields in those locations are shooting up.

This table shows you some of these locations in Sydney, Melbourne, Adelaide and Perth, where current rental yields for units are over six percent, despite unit rents rising by more than ten percent per annum.

Cutting back overseas arrival numbers is not the solution

While we need overseas arrivals to keep the economy in growth, the downside is that they are directly responsible for the rapid rise in inner urban unit rents. This could motivate the Federal Government to address the housing shortage and escalating asking rents by cutting the intake of overseas migrants. This would be a terrible miscalculation as it would guarantee a quick economic slide into recession.

Instead of trying to kill the economy, the RBA should be caring for the economy

Our current inflation rate is a direct result of the massive borrowing and money printing programs that the government embarked on during the pandemic years to keep the economy afloat. While there is no doubt that this was necessary at the time, it was always going to result in inflation. Over time, the rate of inflation will keep falling as the impact of all that money pumped into the economy dissipates.

There is, however, a proven link between interest rates and economic growth as this graph shows.

Every period of higher than usual interest rates has resulted in economic slowdowns (1975, 1996, 2008) or in recessions (1982, 1990).

The data for the last two years shows that we are heading for an economic recession.

Lower interest rates are the only solution

There is simply no need for the RBA to try and speed up the process of lowering inflation with a “kill or cure” strategy. As the data shows, it’s high time that the RBA turned its attention instead to caring for the economy by reducing interest rates.

Lower rates will not only encourage economic growth, they will turn housing into a more viable option for both investors and developers. This will increase the supply of rental stock and new housing and reduce the upward pressure on rents.

Posted on August 30, 2024August 30, 2024 by John Lindeman

The seasonality myth busted

As each spring approaches, so do those blogs and click baits assuring us that spring is the “selling season”. John Lindeman busts this urban myth wide open, explaining that it’s actually the best time to buy.

Potential sellers are often told that spring is the best time to sell their property and at first, this seems a no brainer.

The weather is warming up, gardens look their flowering best and buyers are returning to the property market in droves after hibernating during the long cold winter.

Sellers are also frequently warned that summer is not a good time to sell, because many prospective buyers are on holiday and not concerned about buying property.

Winter is even worse, they’re told, because the cold and wet weather deters all but the most enthusiastic buyers.

There are fewer listings in summer and more in spring

These perceptions have a definite effect on seller behaviour because they encourage fewer vendors to list their properties for sale in summer or winter, believing that their homes will take longer to sell and bring in lower prices because there will be fewer potential buyers in the market.

They also motivate more potential sellers to list their properties for sale in the spring “selling season” because they think that there will be more buyers competing in the market.

They believe that their properties are likely to sell more quickly in spring and for higher prices.

So, all else being equal, you can see that this thinking results in there being fewer properties listed for sale in summer and winter, and more properties on the market in spring and autumn. It is all based on the notion there will be fewer potential buyers in summer and winter and more in spring and autumn. So, is this really what happens?

Australia doesn’t have huge seasonal climate differences

The first issue is that the idea of “seasonality” originated in the northern hemisphere, where the weather changes dramatically with the seasons. That’s not the case in Australia – our winters are relatively mild and in cities with temperate or tropical climates, winter is a good time to go house hunting while spring is already sometimes too hot.

Even in our colder winter cities such as Canberra, Hobart or Melbourne, fans flock in their thousands to watch football games and the weather is seldom harsh enough to keep people indoors for long. The seasons don’t affect buyer behaviour as they might in other countries, but there’s a far more important reason why buyer numbers don’t change.

Buyer numbers don’t change by the seasons

The way in which we search for properties has dramatically changed in recent years and now has little to do with the changing seasons.

Virtually all potential buyers no longer do their initial research by travelling from one real estate agent to the next or going on physical inspections, but by visiting on-line listing sites.

They do this all year round, whether it’s raining, snowing or sunny and from the comfort of their homes, at work or while on holidays.

They take virtual tours of a property, including all the rooms and even the surroundings, organise video walkthroughs of each room with the agent, take a virtual walk down the street with Street View and check out the local area with Google Earth.

As far as residential property buying goes, the internet has been a game changer and is the main reason that buyer searches are no longer seasonal in the way that they may have been many years ago. The idea that “spring is the best time to sell” has become an urban myth, and no longer has any connection with reality.

In short, there is no overall seasonal change in buyer demand patterns and the days when buyer demand rose in spring, or real estate agents were able to lock up their offices and go on summer holidays are long gone.

Yet the persistence of the seasonality myth encourages more vendors to try and sell in spring, and fewer to list properties in summer and winter. This has the exact opposite effect of what they think will happen.

Seasonality as perceived by potential sellers

This picture shows you how potential sellers are told that there are more buyers out there in spring and fewer in other seasons, especially during summer and winter. They believe that by listing their properties in spring or autumn they will sell quickly and for the best price, because there are more potential buyers looking for properties.

This encourages more potential sellers to list in spring and fewer in summer

As a result of the seasonality myth, more potential sellers list properties for sale in spring, fewer in autumn, and even fewer again in summer and winter. This would be fine if the numbers of potential buyers followed the same seasonal pattern, but as we have seen, the numbers of potential buyers don’t change with the seasons.

This picture illustrates what actually takes place in the property market during each season. The numbers of buyers remain steady all year, but the numbers of listed properties rise in spring and fall in summer and winter.

Of course, there are many other dynamics that can move property market prices during the course of a year, such as interest rate changes and population growth or decline. When these are taken out of the equation, seasonality itself has no impact, but the seasonality myth certainly does.

This means that spring is the best time to buy a property because there are more listings and vendors are competing for buyers, while summer or winter are the best times to sell because there are fewer listings and potential buyers are competing for properties.

Posted on March 27, 2024June 4, 2024 by John Lindeman

When will interest rates fall

When will interst rates fall?

The Reserve Bank is responsible for maintaining monetary policy which encourages both economic growth and low unemployment while keeping inflation under control.

The RBA uses three key performance indicators to measure economic health:

The quarterly Gross Domestic Product (GDP) should show that our economy remains in growth.
The unemployment rate should stay below 4.5%.
Inflation must remain within a bandwidth of 2% to 3% over the business cycle.

To measure inflation, the RBA uses the Consumer Price Index (CPI) which is a basket of common goods and services. Any changes in the total cost of the basket indicate the rate of inflation.

The RBA does not take house prices and rents into consideration

Previous RBA Governors such as Glenn Stevens and Philip Lowe have publicly stated their concerns and even “discomfort” whenever housing prices have boomed, but they have never used interest rates to boost or slow down housing prices. Instead, they have argued that such concerns need to be weighed up against the need to regulate economic activity.

They have pointed the finger at how land and housing are taxed and the choices that our society and politicians have made that lead to high urban housing costs. In other words, the RBA believes that housing shortages and rising prices are political and social issues, but not monetary ones.

The RBA only considers housing prices and rents in terms of their inflationary impact, and housing prices and rents are already included in the CPI basket.

What prompts the RBA to change interest rates

Because the RBA relies on all three key indicators (economic performance, unemployment and inflation) together, movements in any one of these will not necessarily be reflected in interest rate changes.

This chart shows that since 1959, home loan interest rates have generally been higher than the rate of inflation – but not always, and the difference has varied considerably over time.

The reason that the correlation has not been close is because the RBA reacts to changes to the unemployment rate and our economic performance as well to the inflation rate.

The RBA acts when two of the three key indicators change

This does not mean that the RBA waits to act until all three indicators are moving the wrong way. The RBA has used interest rates to fix things when any two of the three indicators start to go south, as shown in this table.

For example, at the start of the pandemic in 2020, the economy was about to slow and unemployment was expected to grow, so the RBA cut interest rates to record lows.

By 2022, however, inflation was rising and unemployment falling, so the RBA weighed in with a record number of rate rises.

Will interest rates fall sooner rather than later?

The three key indicators reveal which way the RBA is likely to act in the near future, but although inflation is falling, the rate is still above the RBA’s target of 2% to 3%, and the unemployment rate is still well below the RBA’s target maximum of 4.5%.

This means that it would require a massive fall in inflation with a simultaneous lift in unemployment in the next few months to motivate the RBA to cut interest rates.

However, there’s a third indicator, which is economic performance. The GDP figures for the December quarter showed that our economy is flatlining, so the RBA will be watching the next GDP figures due to be released on 5^th June. If the economy is found to be contracting, it would only take a fall in inflation OR a rise in unemployment to motivate the RBA to lower rates.

Posted on August 19, 2023August 20, 2023 by John Lindeman

Artificial intelligence and the property market

Artificial intelligence is finding its way into almost every facet of our lives. John Lindeman investigates its potential role in property market analysis and prediction.

The main purpose of artificial intelligence (AI) is to develop computer systems which are able to perform decision making tasks normally made by humans. As far as property investors are concerned, the best AI systems should reveal where we can buy for the strongest future growth or cash flow, what type of property will deliver the best results, and when the right time to sell has arrived.

There are hundreds of indicators, stats and numbers to choose from

The issue for the developers of such AI systems is determining which of the huge number of indicators and stats that are routinely quoted and relied on by property market commentators to make use of. Here are some of them:

The AI analysts and programmers have to decide which of those numbers simply don’t work, which ones do and what these numbers are actually telling us about the property market. Then they need to develop working artificial intelligence algorithms using them to make predictions. This means that the data must be recorded and checked against actual performance over long periods of time so that meaningful conclusions can be made.

Stats can be limited or general, and also short or long term

Stats which rely on current trends such as sales and listings can only estimate imminent price or rent changes, while others, such as migration and unemployment rates have a longer time window. The issue is further complicated because some stats have an effect on entire markets, while others only measure local changes.

Some stats such as interest rates and consumer confidence are called “top down” indicators because they can change buying and selling trends for whole cities or even the entire country.

Other stats, which are “bottom up” indicators such as sales and listings can be used to measure potential performance in individual suburbs.

Many experts retreat to the safety of the property market cycle

If you’re confused by all this, you are certainly not alone. Many strategists and theorists throw their hands up and claim that we can’t accurately predict future property market performance at all. They retreat to the assumed safety of relying on past performance, or the property market cycle and the property clock.

Whether artificial intelligence can make useful property market predictions does not depend entirely on what data is used and whether the predictive algorithms are accurate. The main stumbling block is that artificial intelligence can only predict where, when and what, but can’t reveal why.

Knowing the reason why changes occur is often the key to understanding the future performance of any property market. Why is buyer demand for certain types of property increasing? Why is the rental demand falling?

Even the best tested predictive algorithms and methodologies will always need to be confirmed by conducting thorough on the ground research and getting answers to the question “Why?”

Posted on June 9, 2023June 9, 2023 by John Lindeman

The truth about housing market cycles

One expert solemnly warns us about the perils of trying to time the market while another eagerly assures us that the turning point has arrived and it’s time to buy. They can’t both be right, so can we time the market or not?

Human beings hate uncertainty. It fills us with anxiety and worry, so it’s little wonder that many investors rely on indicators that tell us which way property markets are heading.

One of the most popular timing devices is the property market cycle, or property clock. We are often told about which stage of the housing market cycle we are in, or where the property clock is pointing. These tools are seen as being useful for property investors and owners because they appear to give us some certainty about the future.

They claim to predict housing price changes, but have you noticed that there’s so many of them? Property clocks range from four, six, eight, twelve or even eighteen years, and housing market cycles cover suburbs, regions, cities or the entire market. It’s no wonder they point in different directions at the same time.

The reason that these tools are inaccurate is because they operate on the flawed assumption that housing markets always move in regular and predictable cycles and in accordance with immutable laws. The problem with this is that they can’t anticipate significant but unexpected shifts in the causes of housing price changes.

Recent major economic, fiscal and social events were completely unexpected

Yet this is exactly what has occurred in the last few years. We experienced a massive pandemic, which led to unprecedented government responses such as lockdowns and border closures. We are now faced with rates of inflation not seen since the eighties, with many records being broken, such as record low unemployment, record high overseas arrivals, record low rental vacancy rates and a record number of interest rate hikes.

There is simply no way that the housing market cycle or property clock could have anticipated these significant housing demand dynamics when even the most respected and revered economists, analysts and experts failed to do so.

Failing to take unexpected changes into account leads to incorrect forecasts

This is not to say that we can’t predict the future of housing prices or time the market, but it does mean that we need to take those major changes into account when we do.

The main dynamics of property markets are population growth and movement, purchasing power and whether there’s a shortage or surplus of available properties.

Those dynamics dictate which way prices and rents will move, so we need to forget about which stage of the cycle we are about to enter, because right now, the property clock and the housing market cycle haven’t got a clue.

Posted on May 1, 2023May 1, 2023 by John Lindeman

The slingshot effect

As a property market analyst, I’m always looking for tips and tricks that can help investors find areas with growth potential before the growth actually occurs. So what if I told you that there’s a way to easily find areas that have growth potential even while prices are falling? Well there is, and it’s called the slingshot effect.

Have you noticed that when you fire a slingshot, you have to pull the payload down so that it will shoot up?

The same thing takes place in property markets when growth is about to return, because astute buyers move in and buy up the low priced bargains first, which actually pulls prices down until the cheapies are all gone.

The median price measures the middle point of all sales, so even if sales are rising, the median sale price starts to fall because the bargains get snapped up first.

This table shows you how the median (in blue) is hiding the fact that buyer demand is actually growing and prices will soon rise.

Prices start to shoot up, like a slingshot being fired, once all the cheaper listings are gone. Buyers now must compete for dearer properties, and growth quickly returns.

The slingshot effect happens whenever market conditions change, motivating potential buyers to act after many months or even years of stagnation or price falls. It occurs purely because the bargain properties get sold first, so that median prices can’t rise until they are all gone.

This graph illustrates how the slingshot effect works, showing that it took many months after interest rates dropped in 2020 before house prices boomed in 2021.

Even though the number of buyers rapidly grew during 2020, there were sufficient stocks of properties for sale to soak up the demand, and there was no significant rise in prices. By late 2020, however, the turning point was reached as the number of aspiring home buyers outpaced the number properties listed for sale and as all the cheapies were gone, prices suddenly boomed.

This time around exactly the same dynamics will unfold and clever investors can use the slingshot effect to find bargains in suburbs just before prices shoot upwards. Watch for locations where the median house price has been falling, but sales are trending up and the number of properties listed for sale is steadily declining.

For example, the median house price in the inner Brisbane suburb of Rocklea has fallen by around $100,000 since last October, but the number of sales has doubled over the same time. This doesn’t make any sense, unless you realise that it’s the slingshot effect at work, and once all the cheapies are gone, prices will boom.

To confirm that this is happening, we can see that the number of listings in Rocklea has nearly halved since last October, and that there are very few low-priced bargains left for sale. It’s only a matter of months before prices soar again.

That’s how the slingshot effect works. It enables savvy buyers to snap up bargains from vendors who are unaware that the market has changed.