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Is an area giving buy or stop signals?

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08 Mar 2013

Before you commit to buying a home, you need to know what’s been happening to property prices in the area over the years so that you can gauge the likelihood of making a good return on your investment – or not.

You can check the value of a property by getting an online property valuation report that gives the latest sold prices of similar properties in the suburb, street or complex.

Braam de Jager, national operations manager of Aida, says a well-prepared agent will refer to a record of changes in the median price for the area, not the average when giving you an answer.

He says that when the median – a price halfway between the highest and lowest prices recorded during a certain period – shows an increase, it means more buyers are buying higher-priced homes in the area. When it falls, it shows that a greater percentage of sales are taking place on the lower side of the scale.

“Consequently, median price shifts are a good general guide to the state of the real estate market in a specific area. But buyers must be aware that, like any statistics, they may not tell the whole story.”

He explains that the median price could be negatively affected, for example, by a batch of sales in a new development where unit prices are lower than those of surrounding single family homes, and lead prospective buyers to think twice about an area.

But, he says the fact that there is a new development might be a sign of rising interest in the area and a likely surge in prices in the near future – which is quite the opposite of what the median price movement would appear to show.

Consequently, De Jager says it is important for potential buyers to look out for other indicators of market strength, or weakness. The main one being the time it takes to sell homes, “a statistic the agent should easily be able to draw from a Comparative Market Analysis”.

He says if homes in the area took an average of four months to sell a year ago, for example, and the average listing time is now down to two months, it means that there are more buyers around or that there are fewer homes for sale, or both, and that price increases are on the way.

Other good signs of a local market on the rise are a declining difference between the average asking and selling prices in the area, and sellers starting to receive multiple offers because the demand exceeds the supply of homes for sale, he says.

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