RP Data’s national research director, media commentator and analyst, Tim Lawless today walks us through some of the key elements in researching the property market.
Australian consumers have grown to be exceptionally savvy when it comes to researching the property market. Not a day goes by when there isn’t an article in the local paper reporting some aspect of the property market, and information providers like RP Data make researching the local marketplace much easier for the average buyer, seller or investor.
For this reason it is becoming paramount that local agencies are well versed in the analytics of local market conditions. It is one thing to observe market conditions such as recent sales, buyer behaviour and time on market, however quantifying the market requires agents to use more analytical methods rather than pure observations. Median house prices and volumes are of course important, but so are demographic and economic factors as well as local factors such as understanding local town planning and infrastructure plans.
Understanding value movements in the market
There is a wide range of statistics that measure changes in the price or value of properties. Median prices are the most commonly used technique, but repeat sales indices and, stratified median indices are also commonly used. RP Data is the only provider to produce a hedonic index which is designed to measure true value shifts in the market rather than price shifts. Each method of measuring market performance has its own pro’s and con’s. For example, median prices can be biased by compositional changes in the types of stock that is transacting during the period. This is especially the case where a particular region shows dramatic differences in geography such as water frontage or views or there are significant differences in the housing stock.
RP Data’s hedonic index isn’t affected by compositional bias in the market place as the index measures the change in estimated values across the entire portfolio of housing stock within a region; not just those that have sold.
Importantly, market values and volumes are best viewed as a time series which will provide an insight into the market trends and stage of the property cycle. Ten year sales cycle graphs, for example, highlight the level of change in property prices for a region and also show the volume of sales being achieved from period to period.
To understand the value of properties at the micro level there are now new tools in the market that make valuing a property very easy and cost effective. Valuations can now take the form of full valuations, desktop valuations or automated valuations.
- A full valuation, or traditional valuation, typically involves a Valuer conducting a site visit and inspection of the dwelling in conjunction with assessing recent proximity sales to assess the value of a dwelling
- A desktop valuation, or EVR (Electronic Valuation Report), is also conducted by a registered Valuer, however in this case they do not undertake a site visit or dwelling inspection. EVR’s are possible due to the availability of detailed ‘attribute’ data that provides information about the property and surrounding properties. Attribute data includes the land area, dwelling type, number of bedrooms, number of bathrooms, whether the property has a garage, and geographic indicators such as water frontage, elevation or proximity to a major road.
- An automated valuation or AVM (automated valuation model) is just that – completely automated through a computing process. RP Data values every property in Australia each week. The methodology relies on complex modelling that uses the dwellings attributes and compares the property with surrounding homes that have similar characteristics that have recently sold. All AVM’s come with an accuracy score that provides an indication as to the reliability of the valuation. The AVM’s can be very useful tools for providing vendors with an independent assessment of a property’s value.
The complete suite of valuations is available through RP Data valuations.
Having a broad understanding of the macroeconomic environment is also an important factor to include in a research strategy. Key indicators include interest rates, inflation, consumer sentiment, employment data, housing finance, dwelling approvals and commencements… and the list goes on. Economic data is available through a variety of government and private sources, usually free. The Australian Bureau of Statistics and the Reserve Bank are two primary sources for compiling this data.
Most vendors and buyers will be interested on your views on where the market is heading. A large part of your response can be taken from an analysis of the macroeconomic environment; where are interest rates heading, what is the forecast for inflation and what impact will changes in labour market conditions have on the market?
Demographic information is the last piece of the jigsaw puzzle. Demographics can tell a story about the type of people who live within a particular community; are they generally young or old, do they prefer to rent or own, are they family households, group households or lone persons, what level of income’s are most common, etc.
For many buyers, understanding the overall look and feel of a suburb or neighbourhood is essential, particularly if they are buying from some distance away.
Other demographic information such as population growth can provide invaluable insights into future market conditions. Population growth can be regarded as demand for dwellings, so areas where population growth is strong should remain in high demand from buyers and developers.
Might want to include other things here such as town planning regulations and infrastructure plans.
- Quoting research is a great way to build your profile, but before you educate your market, educate yourself. It is inevitable that people will ask you questions and an intelligent response will reinforce your credibility.
- Use research to establish your knowledge and understanding of the market and broader economy. Use your local market experience to bridge the gap between the research and current local market conditions.
- When in doubt… ask! Interpreting a graph or table is something that not everyone is familiar with. Also, some economic or demographic concepts can be baffling. RP Data has a dedicated research division who are happy to assist with understanding any research releases.