What do key statistics tell us?

Posted by Daniel Joseph

In today’s newsletter we will be running over a few key stats that constantly appear in the media. We feel that at times these statistics can be misleading and are not used in context of the statistics’ real definition.

Clearance Rate – This favourite of local real estate agents is used to show the number of properties that have sold at auction over how many actually went to auction. When clearance rates are increasing it can be perceived that prices are rising, however, this might not always be the case. It may mean that home owners are adjusting their prices down to meet market demand. It is also important to note that clearance rate statistics are prone to great variance as a large number of properties that are scheduled for auction might not go ahead and therefore won’t be reported, which can skew the results to look more favourable.

Median Price – The median price is a popular way to measure the price of the average property in the area. It is a relatively reliable indicator, however, it can be inaccurate if a large sample is not used from which to collect the data. A relatively reliable median price measurement needs to draw from more than 50 sales in a suburb to be deemed reliable.

Population Growth – A growing population does not necessarily mean property prices will increase. If anything, if the population is growing at an extreme rate it could point to a large amount of development, which could in turn lead to an oversupply. Looking at more established suburbs in Sydney’s inner west, you can see that population growth has been static there due to the little development that has taken place but that property prices have grown. If the population is growing you need to make sure that the level of development isn’t too aggressive, as with the inner city Melbourne market.

Affordable – We constantly get reports from the REINSW that affordability hasn’t been better since 1994. What affordability refers to is if you had the same income, interest rates and property prices today adjusted for inflation it would be equivalent to buying in 1990. Seeing that median capital city house prices were $150,000 in 1994 and are now currently $550,000, this statistic doesnt seem very reliable. It may be more affordable to purchase due to increased incomes, however, the statistic fails to take into account the extra cost of servicing the extra debt and shrinking disposable incomes due to taxes like the GST.

In summary, these statistics can be used to gather a snap shot of a certain property market, but it is important to understand what they actually mean. Using a single one of the above statistics to describe a market would be misleading without actually investigating what is going on in the market.

Posted by Daniel Joseph, on 29th Jul 2013