It's so easy to get nervous when you pick the paper up or watch television and the fear mongering plastered everywhere. We see things like prices are about to drop by 40% and the market is about to crash, it's no wonder that people get disenchanted with the reporting.
Why does this fear mongering happen?
Unfortunately, news sells, and often bad news provides a punchier and more-clickable headline than good. Many news outlets or even individuals will use these sensationalised exaggerated claims to either pull in viewers, readers or to gain their own personal 15 minutes of fame.
Cate Bakos, a buyer’s agent out of Melbourne said: “It's terrifying a lot of buyers. People can easily get wobbled when they're about to do something or have just done something and then see a headline like 40% price crashing in a city like Melbourne or Sydney. And we have to remind ourselves that that's an enormous figure, and it would be unprecedented.
“Looking at the integrity of the data, and data can be manipulated in so many ways that when we look at headlines like that, there's not a lot of integrity there. We certainly have data to suggest that areas have come off, and it's clear that we're in a buyers’ market. When we contrast it with the height of the sellers’ market last year, the figure is always a median price. So, we've got to remember that that's a midpoint or we're looking at median figures. And that doesn't mean that every single property is treated the same.
“In fact, in some areas, properties hold firm or demonstrate a little bit of growth. It's not just postcodes, it's dwelling types as well. So more than ever, we have to look at the data carefully, because markets can't just be defined with one figure.”
What is the fixation with medians?
There seems to be this strange fixation with medians. A median is obviously the midpoint in range. It indicates where the majority of people are buying, but it has nothing to do with values.
Cate explained: “You can have a month where you've got some houses that are large family homes in established areas with high land value. And that can drive a median price because of the nature of the sale. It might be that you get more houses like that selling towards the end of spring because families are gearing up for a change for Christmas. So, there's lots of market nuances and seasonal changes that can affect median, and we have to be really careful about how we cut the data. And also, when we look at how houses and units are qualified, units can incorporate a broad array of property types. And it's also down to how the agents record the sale.
“So, some of our data that we rely on is very flimsy indeed, and it really pays to have a careful look at the data. You might see these hotspot areas in little suburbs you've never heard of, and it's because somebody sold a farm site or they've sold an enormous piece of land, and all of the sudden, the area is showing a sale that's an anomaly result.”
How much can you tell on a month-to-month basis?
It is surprising how much emphasis is put on month-to-month stats, when it is so little you can really learn from them. Even yearly results can only show so much about market changes. To grasp a real understanding of what is happening, you have to look back five, even ten years.
Cate agreed: “Every now and then, you'll see a sale type that had a different set of circumstances around it, and even that can skew the data. So, for example, when we're looking at recent comparable sales analysis, we might see some results that stand out as though it might be much higher than we would've anticipated or much lower. And so, we can call the agent and say, "Hey, can you tell me about that sales result? Why was it so high?" And they might say there were two really emotionally driven bidders there at auction that day, and they had very emotional needs to have that property, and they took it well beyond reserve.
“Or if it was a bargain buy, we might ask them why it was so low. And it could be that the vendor needed a very fast sale, or they had really tricky settlement requirements, or it could've been a badly tenanted property, and the tenant was a nightmare and presented badly. There's so many behind the scenes reasons for the data anomalies, and it's impossible to cover them all. But if you're doing careful due diligence, you've got to be prepared to pick up the phone and have a chat.”
Stay tuned for more articles from Real Estate Talk, a trusted source for real estate investors, new and old.