Some property market statistics are more helpful than others. Adobe Stock
Property market statistics make for great headlines, especially when they touch on soaring prices and shifting city rankings.
But for investors it is vital to sift through the noise and hype to select only figures that are enlightening.
Firstly, it’s important to remember the three main statistical metrics and how they each offer a unique perspective on market values.
The most commonly used is the median, which is less affected by extreme values, making it a more reliable indicator of the typical property price in a particular market.
The mean, or average, is used less often, and offers a broad sense of trends, but can be skewed by outliers, such as high-end, luxury sales.
Then there’s the mode, which identifies the most frequently occurring sales price. It’s not often used in broader market analysis, but can be useful in property pricing and marketing strategies.
That all sounds clear and reasonable, but it’s how these tools are applied that can create differing and sometimes misleading perceptions.
Let’s take a look at median values for example.
Some data analytics firms aggregate capital city data, providing median values based on all sales irrespective of the type of property.
If data includes houses and units, the results can be misleading for comparative purposes, as apartment-heavy markets such as Melbourne can appear to be performing poorly against smaller capital cities, which don’t have the same proportion of lower-priced property dragging the median down.
Others attempt to split the data, reporting house and unit medians.
These contrasting approaches, in tandem with the different methodologies employed by each data analytics companies to calculate median values, can produce some interesting results.
For example, in May this year, depending on which data analyst’s report you were reading we had Melbourne’s median values sitting at either $780,437 or $806,000, and Brisbane’s sitting at $843,231 or $834,000.
In another twist, when the data is broken down by property type and units are excluded, the price comparison between the two cities shifts significantly. Melbourne’s house prices come out well in front at $1,039,719, compared to Brisbane’s $947,464.
Where does that leave investors assessing the potential health of a particular property market when deciding where to direct their capital?
Let’s be clear here, this is not an exercise in statistics bashing. Data analytics firms provide a very valuable service, offering important insights.
For example, there is no doubt that Brisbane is a market on the rise. In fact, we wrote an article on its upward trajectory trend last month and duly referred to the fast-rising median prices.
The statistic helped us articulate an interesting broad-level market perspective, but shouldn’t be mistaken for granular-level investment advice.
The reality is there is no one statistic that can give you a true read on the market. There are different takeaways that can be gleaned from a dataset depending on how it is viewed. And investors need to be able to balance off these particular slants when incorporating market statistics into their investment decisions.
The best way to do this is to augment the big data, macro trends with a granular understanding of your micro-market – gathering primary, first-hand data through speaking to local real estate agents, tracking auction attendance numbers, pass-in rates, recent sales prices and so forth.
These insights are often more qualitative in nature, drawing on experience and local expertise – either your own or that of a trusted industry professional.
The closer you get to your eventual purchase, the more detailed the data you are assessing and deciding on should become – eventually right down to the visual assessments of the fixtures, floor plan, and sales history of a house or apartment.
At the end of the day, asset selection is key. Unlike gold, bonds and shares – which offer a degree of standardisation and divisibility – property demands a more hands-on approach.
(Fin Review – August 2024) If you would like assistance with a home loan health check, purchasing property or refinancing, or to discuss any other lending needs, please do not hesitate to contact Geoff.
PROSPERA FINANCE — Geoff Norman
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