How Relevant is Median Data?

Source: CommunityScope R and D via Flickr

I wrote a little last week regarding the REIV’s somewhat questionable statistics; namely, that the revisions typically occur 3 months after the quarterly figures are released, and seasonal adjustments can shift negative data into the positive.

Figures are revised because all data providers suffer from a lag in reported results. These typically filter in over the 3 month period after the quarterly release from valuer general data, which is the most authoritative and comprehensive source of sales information we have. 

At time of release, the raw data often goes hand in hand with some bullish headlines, which claim large increases or decreases that can reduce significantly when the next quarterly bulletin hits the press.

APM have now released their own assessment of quarterly growth for Melbourne, which contains similar subsequent corrections on previous releases – items easily missed if you’re not used to digging beneath the headline content of their press release.

As an example, APM’s June results show Melbourne as the national leader in price growth, with a 5 per cent rise over the quarter, which equates to 6.1 per cent year-on-year. However, if you read the fine print, it’s clear this robust increase resulted from a downward revision to their March quarterly statistics of around 2.2 per cent to $527,245. In fact, if you take subsequent revisions into account, Melbourne’s annual price growth would be closer to 4.2 per cent.

So how much can we trust median data? Essentially, the median is the middle figure of all cited sales. Individual property prices, and the changes a property may go through in terms of renovation and extension (which would therefore warrant a higher capital price outside of natural increases) are not always represented in the information provided. It should also be noted that each provider uses a slightly different methodology when collating their statistics.

As mentioned above, the most reliable data we have comes direct from valuers, which captures all settled property sales across Victoria. The one significant drawback is the time it takes to receive this information.

In this respect, the recently released Guide to Property Values 2012 is just bringing to light insights into what was a fairly depressed year for Melbourne’s property prices.

When aggregated, the data shows the median sale price for metropolitan Melbourne houses decreased by 2.4 per cent – from $492,000 in 2011 to $480,000 in 2012. Along with this, the total number of sales also decreased over the year by 6.7 per cent – a drop from 142,376 to 132,884.

Valuer general data covers figures suburb by suburb for houses, units and vacant land – however, it’s not stratified to reflect intrinsic differences in various property types and therefore, the headline figures cannot be used to represent true movements in actual house prices in any one suburb.

Only a market appraisal or valuation, taking into account essentials such as location, type, feel and the micro market for any said suburb, can provide this information. On the other hand, it gives a broad indicator of the trend in movements, and throughout the course of 2012, it’s clear interest rate drops and other stimulants incorporated to boost confidence were not having an impact.

One advantage in their reports is the length of time the data covers. Figures can be tracked back over 30 years. But once again, when assessing the price or future performance of a suburb or property, the median results tell little – and to gain a true insight into these matters, you really need to ‘walk the talk.’

In this respect, when assessing Melbourne’s property market from the ground, it’s clear there’s been an improvement year-to-date. It’s one that has been felt in most states, barring perhaps Adelaide and Canberra.

The recovery is largely lead by investors and up-graders. The number of owner-occupier housing commitments is up 15.1 per cent year-on-year, and as mentioned, it’s investors who are playing a far bigger contribution to price rises in Australia’s real estate market. 36 per cent of loans are going to this sector alone, and all states are experiencing a rush to the perceived safe haven of bricks and mortar. 

Year-on-year, Victoria’s investor numbers are up 11.3 per cent. This is also evident in the pace at which Australian buyers are fixing their mortgages, agreements which comprised 19.1 per cent of new mortgages in May after reaching 20.6 per cent in April.

It could be argued that we haven’t even started to see the full impact of an investor-led surge towards real estate.  As reported this week from the new SMSF Professional’s Association of Australia and Macquarie Bank  according to the ATO, between 2006 and 2013, SMSF property assets grew in value by 230 per cent – “a higher growth rate than any other asset class.” And it’s the baby boomer generation aged 55 and over who are leading the way, highlighting our demographic headwind as the tsunami of retirees create expected significant craters in future government expenditure.

This type of activity is pinned on confidence, and it’s yet to be assessed if the forthcoming federal election will have a significant impact. As it currently stands, agents in the inner and middle ring suburbs of Melbourne are reporting stock levels that are not keeping up with buyer demand.