CURRENCY OF PROPERTY STATISTICS
Question: Is there a way to get an accurate indication of price movement in a certain suburb without waiting for three months as seem to be the case with the data providers? If so, how?
Answer: Yes there is. At RP Data, a lot of our data analysis is moving away from median selling prices and more to a valuation methodology. The valuation methodology still uses recent sales information – in fact it is imperative to have this data. Based on this data and everything we know about all properties, we revalue all homes every week. It is a much more timely and accurate measure of the housing market.
VALUES VS PRICE
Question: Is there a difference between values and prices? If so, how? What’s the more reliable indicator of the market performance? Which should you pay more attention to?
Answer: There is a big difference between price and value. When people refer to median prices, they are simply referring to the middle sale price of all sales over a period of time. On the other hand, a value measure looks at all properties, not just those sold, and determines the median based on the value of all properties. The median value is a much more accurate measure because it looks at all properties, not just the 5% to 7% that would typically turn over in a year. For example, when using a value measure you are measuring the whole market in each period. On the other hand, a price based measure is looking at those properties sold in one period compared to those sold in another. Often it is highly unlikely that any of those properties appear in both of the bundles of properties being measured so there is compositional bias in that you aren’t measuring like with like. Value is a much better way for measuring the overall change in the market whereas prices are useful for measuring affordability and understanding what price properties are typically being transacted at, at a point in time.
PROPERTY PRICES AND INTEREST RATES
Question: What type of properties sell well when there’s a rate cut? What segment of the market suffers when there’s a rate rise?
Answer: It isn’t really clear what type of properties sell when there is a rate cut because it really depends on broader economic conditions. Usually, lower interest rates mean that the broader economy needs stimulus; historically it will mean low inf lation which may in turn be characterised by lower economic growth, lower levels of retail spending and perhaps increasing unemployment.
When mortgage rates fall, all types of buyers benefit because costs associated with servicing their mortgage reduce. As a result it is typically the more affordable end of the housing market which receives the greatest benefit, although all sectors do profit. When rates increase it is typically indicative of stronger economic conditions. As a result, the cost of servicing a mortgage rises and usually it is the more affordable end of the market that suffers as they tend to be much more sensitive to increases in housing costs. Conversely, the premium housing market is typically like to perform comparatively stronger when mortgage rates rise.
Disclaimer: The views provided are of a general nature and should be considered as general information only. This is not financial advice and it is not to be acted upon without advice from a qualified professional who understands your personal circumstances.
