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The Price Data Is Much Stronger Than The Headlines

There’s a concerning trend emerging where people are relying TOO much on the monthly property price data – from one high-profile source – as an accurate indication of what is happening in property markets – and what WILL happen in property markets.

Too many people take this short-term price data as the gospel truth and allow it to dictate their decisions on WHETHER they will buy real estate and WHERE they will buy it.

Australian consumers need to understand this simple truth – all real estate data is, to some extent at least, dodgy data. They’re all rubbery figures and you cannot take them too literally.

You certainly should not make big assumptions – or big decisions – based on one month’s figures from one source.

And you need to be aware that the emphasis featured in news media is quite different from what the actual figures show.

In addition, quite often I find that the day-to-day evidence at the coal face of property markets suggests that individual markets are working differently to what’s portrayed in the published data, or media’s interpretation of the published data.

A key lesson to take on board is that you cannot look at Australian property as one market. There is no such thing as “The Australian property market”.

There are thousands of different markets, all driven primarily by local affairs.

CoreLogic puts out its monthly data on prices, with a single figure for Australia, and people make the broad assumption that this is true for the entire nation.

Consumers absorb erroneous messages about prices being in decline or messages that the rate of price growth is dropping – everywhere.

It’s simply not the case.

I repeat, all real estate statistics are rubbery figures to a certain extent. They generally don’t take into account local factors – which have a much bigger impact on price trends than nationwide elements such as the level of interest rates.

Meanwhile, price data from other reputable sources have different numbers which often tell a different story.

A recent example was a report from CoreLogic which claimed that Melbourne house prices and Sydney house prices fell slightly in the month of March.

But when you look at another reputable research company, SQM Research, its analysis of the same period shows house prices increased in both the big cities.

If you source the latest data on median prices and annual growth for a particular city from four different sources – such as Domain, SQM, CoreLogic and ABS – you are likely to get four different results.

Four different median prices and conflicting information on whether prices are rising or falling, and by how much.

Recently I did an Internet search, asking for the median house price for the suburb of Blacktown in Sydney’s west. I got an answer from seven different research sources, and they were seven different answers, ranging from $745,000 to $900,000.

This begs the question: Who is right? Maybe they are all wrong?

In addition to that, quite often the price data that many are publishing does not correlate with what is happening at the coal face.

An example is Perth. People who are trying to buy there will tell you that properties are selling quickly, it is hugely competitive and prices are rising fast. Individual suburbs have increased by more than 20% in the past year.

But CoreLogic data doesn’t reflect that. It says the median house price for Perth rose only 7% in the past 12 months, but professionals at the coalface of the Perth market – valuers, buyers’ agents and selling agents, as well as individual investors – say that this is not even close to being accurate.

I don’t think CoreLogic’s data on the Perth market is very reliable. SQM Research says the annual growth figure for Perth is 11%, considerably higher than CoreLogic, but even that number understates the strength in the Perth market.

The figures that many data companies come up with, for the same market, are quite different – because they have different parameters and methodologies – BUT they are all reported as FACT by the media, which never highlights the differences.

It shows you can’t rely on just one data source to truly reflect what is happening.

But the biggest message is that the monthly price data published regularly by media is largely irrelevant to the decisions of consumers – because these historical price growth figures DO NOT INFORM THE FUTURE.

Real estate consumers need to take notice of forward-looking indicators, such as sales volumes, vacancy rates, rental data and information about infrastructure spending.

The one data set I have the most confidence in is sales volumes.

As the advertising slogan says, past price growth is not an indicator for future performance, but sales volumes trends ARE a good indication of future performance.

A consistent rise in transaction levels is generally a precursor to future price increases. It shows that demand is increasing and, as demand increases, so do prices. Usually.

And here are some other factors that DO inform the future and which point to strong growth in selected markets in 2022 and beyond.

Those factors include …

  • The continued exodus to affordable lifestyle in regional markets,
  • the prospect of the Commonwealth Games in Regional Victoria,
  • the 2032 Olympic Games in Brisbane,
  • the level of infrastructure spending in individual regions,
  • the huge upcoming impact of the re-opening of international borders, bringing back overseas migrants and international students.

These are all things which are having an effect on local property markets, or will have an impact in the near future, but none of this is factored into the so-called analysis you will read or hear in mainstream media.

All of these things are more important for people to contemplate, rather than the historical and dodgy data about changes in capital city house prices.

There will be high levels of price growth in Australian property markets in 2022.

Not everywhere, but in selected markets – and the challenge for investors is to identify which markets are the growth markets.


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