Have you ever wondered what demand is like right now for a property strategy in a postcode or street? If you have, did you know that there is a brilliant but little-known way to do this anywhere in the UK, and in near real-time?
Traditional Market Indicators
The property industry has, since time immemorial, used movements in prices and numbers of transactions to give itself an insight into the state of the market. This method is fine in retrospect, but near to useless for getting a steer on how the market is right now.
Then, to get an idea of how things are, we ask estate agents if they think demand is high. And when they say it isn’t, we accept that demand is low.
We also use mortgage approvals, getting data on the volume of approvals to see if the market is up or down.
Limitations of Volume-Based Data
This all sounds robust. But, and this is an important but, this data does not indicate demand. It indicates volume. The confusion of volume and demand is why our industry always seems to fail in predictions and forecasts.
Reconsidering Market Insights
We have to think about these measures more carefully, especially as property investors.
First is price movements. Price movements are after an event and often are at least 6 to 12 months behind where the market is because:
The time from offer to exchange is normally at least 3 months, and
The time taken for data to be published via the Land Registry can be up to a year.
Insights from Estate Agents
So, we look to agents. Agents tell us it's busy when they have lots of sales and quiet when there aren’t many sales. But what about listings? When we had the Liz Truss mini-budget and rates rose quickly, agents said demand had dropped massively. It hadn’t; it actually increased. The major shock wasn’t sales (which did fall), but listings fell dramatically and quickly. So agents had less to sell, but a higher percentage of the stock was actually selling. Wonder why the market didn’t collapse? This is why.
Are Mortgage Approvals a Good Indicator?
Ah yes, but aren’t mortgage approvals a great measure – it's what the banks use? Well, actually no. Approvals tell us the transaction volume again. When transactions are down, approvals are down. This doesn’t mean property demand is low. Furthermore, events like rate changes and even the weather can impact this. So we cannot use this for demand.
The Importance of Demand Data
A good investor has to let go of prejudices and traditions relating to market insights. Sadly, much of the noise, commentary, and opinion is grounded in these measures.
Since 2012, I have worked to improve the data and metrics we have to measure the industry. Time and time again I am reminded of the importance of knowing demand. Buying in a good-demand area and high-demand property types ensures I:
Protect myself from pricing falls
Am in a rising market, making finance or refinance after work easier
Can rent or sell on properties without issues
My Personal Approach
In my own property businesses, I only acquire properties that are at the top end of growth projections, which in plain English means I only buy in the highest-demand streets and property types in an area. You’d be astonished, as I often am, at the differences focusing on one of these postcodes makes, and by how quickly they can change from good to bad, or bad to good.
Case Study: Demand and House Price Change in South Wales
Here's an example of demand and house price change for a location in South Wales:
Firs, demand:
Next, asking price changes
Following demand, I would have started investing in this area far sooner, as I could see demand climbing from February, at a time when prices were still falling. I would be buying the dip. You can see that prices have only just begun to rise, so I will benefit from the falling prices for a good deal and the rising market for capital appreciation.
How to Buy the Dip and Identify High-Demand Areas
People say buy the dip and buy where there’s good demand. The easiest way to buy the dip is in a high-demand area following price falls. And good demand is never the highest price growth area; it’s the area likely to have high price growth.
The Critical Role of Demand Data
It is imperative that at all times we use good demand data to help us understand how our investments are going to do. And knowing which data to look at first is critical. We should all understand and use the demand flow for reading a market:
You can do this using UPD Insight. Every UK postcode has demand data, updated every month. Demand can be overlaid on a map, and you can use it to find high-demand property leads as seen below.
There is a two-week free trial available to our platform. If you’re interested in learning more, then get in touch using any of the details below.
Website: https://ultimatepropertydashboard.com/
Instagram: upd.ai
