How useful is Property Data?

An extract from Australian Property Investor Magazine's Deputy Editor Vanessa De Groot 25 May 2011:

The compilation of data related to the property market is now extremely comprehensive, with some companies dedicated solely to putting figures together and getting information out there.

BY VANESSA DE GROOT
There are regular news stories about the increase or decrease in the median price of property and it’s widely used as an indicator of the overall state of the property market.

For instance, it was recently reported from figures released by one of the data compilation companies that over the March quarter home values fell by 2.1 per cent. That, in turn, saw a number of stories in the media that used the data to claim the housing market was in a bad state, with prices falling.
Many of us know well the arguments about house prices falling, one of the most important being that even though prices might fall across the board, that doesn’t mean that they’ve fallen in every suburb in Australia – in fact in some places they might go up. Similarly, it doesn’t mean prices have fallen for every property. It also doesn’t mean the property market is in dire straits.
So I pose the question – how important is this data? Is it an accurate reflection of what’s going on in the market and can we rely on it as such? Or should it just be used as a guide?
I think many property investors use the data to get an overall understanding of what’s going on in a particular market.
But we must be aware that the data needs to be carefully examined. If a median house price in a particular area has risen then you also need to look at things like the number of sales, because if there’s only a low number it might not be an accurate reflection, and whether there’s new housing development in the area, which might be pushing the median price up.
Investors shouldn’t look at median prices for an area and immediately assume that they can find something in that area for that price – many factors can throw the median off and hence, it may not be a 100 per cent accurate reflection of the market.
Similarly, if you have a property in a particular area and the median price has grown by a certain percentage, but yours hasn’t, it doesn’t necessarily mean the data is wrong. The percentage growth rate doesn’t necessarily apply to every single property. There are a lot of variables and your property may have characteristics that means it may grow more than the average growth rate, or less.
It may also be a good idea to look at data for a long period of time – that is, the growth rate over five or 10 years may more accurately reflect the growth in median price rather than looking at the past year, as that can be influenced by different, temporary factors.
As an example, if we look at the media reports now, with all the doom and gloom about property prices having fallen, we’d be misled about the property market.
Figures might indicate – rightly or wrongly – that the market has dropped a tad, but over time if we look at the growth rate of property prices it’s an entirely different story, with prices having risen exponentially over the years.
This is just a temporary slowdown and if we interpret the figures correctly, looking at growth over a longer period of time, we can see that.
While it’s a good idea for property investors to use data that looks at median prices, rents and even things like supply and demand and stock on market, it’s important to put it all in context. Thorough research of a particular area should be undertaken before buying solely on the figures.
That’s important too because even though there might have been growth in a particular area in the past, there’s no guarantee from that that there’ll be growth in the future. Future growth depends on things like whether there’s population growth and infrastructure being built, among many other things.
Don’t get me wrong – I think the property data provided by research houses is very worthwhile and is essential for investors to be familiar with and understand, but I also think we shouldn’t put too much reliance on it when buying or selling, or even setting a rental rate.
It’s just one part of the whole story.