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      26 Jul 2017

      Seasonality – fact or fiction?

       

      Every investor wants to maximise their profits by buying when the market is over stocked with vendors willing to compromise on price; then selling when buyers are competing with each other to secure a property, driving up prices in the process. While there are many ways to judge the best (and worst) time to buy or sell, does the season itself make a difference?

      House and unit prices continuously move around a great deal and can be rising in some cities even as they are falling in others, giving rise to perceptions of seasonality as the cause when in reality there may be other more significant factors at work.

      To get around this issue we can try to isolate seasonality in a number of ways, by measuring the rates of growth and decline in different types of property such as houses compared to units. Or we can analyse the likely effect of seasonality on different types of buyers, such as home buyers with young children who may prefer to do their home hunting before or after the holiday season, or potential retirees who may prefer looking for their new home when the climate is at its best.

      We can also test seasonality by the physical location of our largest housing markets around Australia and the likely influence of the weather on potential buyers and sellers.

      COMMON WISDOM AND THE WEATHER

      It is a common belief that fewer people go out looking for properties in winter because the weather is colder and wetter. This is confirmed by academic studies, with analyses done by the London School of Economics showing that housing markets in the United Kingdom have higher sales and prices in the summer months and lower transactions and prices during winter. Yet is it relevant to rely on UK studies, when our seasonal climate is so very different in Australia?


      As Figure 1 shows, Australia’s capital cities are situated in a variety of climate zones ranging from tropical to temperate and in some northern cities, winter is a far more agreeable time of year to conduct on the ground housing research while summers can be uncomfortably humid. Even in some southern cities winters can be mild and pleasant enough to venture outside on a new house search.

      It is highly unlikely that the Australian climate itself can have made a substantial enough difference to support the common wisdom that buying a property is a warm weather affair. Most people, however, take their annual holidays in summer to coincide with the six week school and tertiary education break and many businesses shut down over part of this time as well. This has led to the conviction that it’s best not to try and sell a property in summer, not so much because of the weather but because so many potential buyers are on holiday.

      Many real estate agents will advise potential vendors that spring is the best time to sell, simply because more buyers venture out at this time of year, rather than during summer holidays or colder winter weather. Not only will properties sell more quickly they say, but you’ll get a better price as well. Other experts insist that sales and prices rise before the end of the financial year and the calendar year, because investors jump in before 30th June each year while owner occupiers prefer to have their new home bought and the old one sold before the Christmas period.

      This logic makes perfect sense, but are these notions and beliefs supported by the facts? To test these perceptions and judge whether or not seasonality exists as far as the housing market is concerned, we need to look for any regular changes that occur in both sales and listings over time and see whether these result in price changes. We also need to do this for both houses and units and in different climate zones, to see if any regular patterns emerge.

      PROPERTY SALES AND THE SEASONS

      The number of sales is a reflection of buyer activity, so if seasonality is caused by changes in buyer demand, the number of house or unit sales will reveal any trends over time. To identify and isolate any possible seasonal effect we need to divide sales by different types of markets, which I have done by grouping the housing market into three climatic regions – the southern capital cities of Sydney and Melbourne (including Canberra and Hobart), the northern cities of Brisbane and Darwin, and the central and western capital cities of Adelaide and Perth. Naturally, any other cities of housing markets can then be included into one of these three groups according to their location. Figure 2 shows the house sales for each season and each group of cities from autumn 2013 to the 2014/15 summer.


      The results in Figure 2 provide no evidence of any seasonal variation in house sales over time. The number of sales in the southern capital cities of Melbourne and Sydney in particular rose steadily until the winter of 2014 and since then, the total number of sales every three months has fallen.

      The same pattern is evident in the northern capital city of Brisbane, except that the number of sales has continued to rise since the 2014 winter. While these results may prompt us to reflect that overall housing demand is slowing in Sydney and Melbourne but rising in Brisbane, they do not provide evidence of seasonality. Further, the sales patterns in the central and western cities of Adelaide and Perth show a steady increase in demand for houses in those cities without indicating any seasonal demand changes.


      Figure 3
      indicates the total unit sales that occurred during each season and while the winter 2014 season certainly marks a distinct period of change in demand patterns, it does not indicate any seasonal variation, because sales in each region moved in the opposite direction to the previous winter.

      Rather, the winter of 2014 heralded a period of higher unit demand in Brisbane and of lower demand in the central and western capital cities of Adelaide and Perth. Unit sales in Melbourne and Sydney, the two most active southern city markets, have fallen since mid-2014, but all of the sales figures are still much higher now than back in autumn 2013.

      Taken together, the two sales graphs show that there is no evidence of any seasonality in demand for either houses or units but merely that demand is either rising or falling in response to other dynamics. Buying a house or unit is a process which can take months from initial offer to exchange of contract and settlement. A family buying a new home before they go on holiday in summer can either hasten or delay this process to meet their needs, while to other buyers such as overseas investors, the time of year is irrelevant. In short, there is no overall change in demand patterns which is seasonal, but looking at sales only gives us half of the picture – we need to assess any changes in listings, or properties for sale on the market as well.

      PROPERTY LISTINGS AND THE SEASONS

      With no overall seasonal change occurring to sales, the balance of supply and demand can only be influenced by the supply side, or the number of listings. Figure 4 shows the average number of daily house listings which occurred during each season for each of the three housing market regions we have analysed.


      The figure shows that listings do indeed vary by season and that the differences are most pronounced in the southern cities of Sydney and Melbourne. Listings were at their lowest in winter and again in summer, with a clear rise in listings from each winter to spring and again from summer to autumn. While in the central and western cities the seasonal variation is almost completely hidden by the overall upward trend in listings, it is still evident. Brisbane’s house listings also show the same small seasonal variation taking place even as the overall number of listings trends downwards.


      Figure 5
      gives us the same data for units, showing that there is a clear seasonal change in listings for each region with the listings being lowest in winter and in summer. These variations are more pronounced in the southern cities of Sydney and Melbourne and override the general downward trend in listings that has taken place.

      Why do fewer potential vendors put their properties on the market in summer and winter than at other times of the year? The reason is the seasonality myth which states that there will be less buyers during the summer holidays and colder winter months. As a result, fewer people place their properties on the market not realising that month by month, the numbers of buyers doesn’t change at all. And so, the fact of seasonality has a completely different effect on housing prices to what the myth would have us believe.

      HOW PROPERTY PRICES VARY WITH THE SEASONS

      Because we know that there are no seasonal changes to the number of property sales, we can measure any effect that the seasonal variations in listings has on the housing market by the changes that take place in the median price for houses and units in each region. In other words a fall in the number of listings should cause higher prices and a rise in listings should lead to lower prices, or at the very least, put a dampening effect on price rises.

      Let’s now look at the changes in median prices that took place in the three regions over the same time to see whether any seasonal changes are apparent. Figure 6 shows the median price change for houses in the capital cities represented by each of the three climatic regions.


      Rather than the straight growth and decline curves we saw in the sales figures, Figure 6 shows that there is a noticeable seasonal variation taking place in our house markets – more evident in Brisbane, but still quite evident in the other capital cities as well. Price growth slows in spring and autumn, even causing occasional small falls in the median house price. Then there is a definite pick up in price growth which occurs during the winter months and again in summer. Figure 7 shows the same regional and seasonal data for units.


      The seasonal variation in median unit prices is quite evident in Figure 7 with the higher unit listings causing market price slowdowns, even falls in the spring and autumn seasons. Actual, although temporary prices falls are evident in every capital city market during this time, followed by strong price growth in the following seasons of winter and summer. Even when prices are trending upwards over the entire study period in the southern cities of Sydney and Melbourne, the seasonal spring and autumn price dip is clear.

      THE SOLUTION TO THE SEASONAL DILEMMA

      With this data at our disposal, we can now put the seasonality myth to rest and put the facts to good use in choosing the best time to buy or sell. Even though the total number of sales does not change with the seasons, there tend to be fewer properties on the market during winter and summer, especially in Sydney and Melbourne. But, because the number of buyers does not change, they put more pressure on prices as potential purchasers compete for the smaller number of properties on the market. As a result, prices tend to rise when listings are at their lowest and fall when they are at their highest.

      The change in median price from one season to the next can be from 5% to 10%, which easily outweighs the trend changes that are taking place in the overall market, so if you have a choice it should pay you to use seasonality to your advantage. SPRING is the best season to buy a house or unit, as the number of properties on the market is at their highest point and median prices are at their seasonal lowest, while SUMMER is the best time to sell, because the number of properties for sale is at their lowest and median prices are at their highest.

       

      Note:

      The sales, listings and median price data for each region shown in the figures above have been weighted to bring them into line for comparative purposes.

      Sources:

      Property Power Database

      Housing data provided by APM