Property Report: Perspective needed in the numbers game

Unlike the clear supply-and-demand signals of a stock exchange, the property market is more subjective. A villa may be pretty to some, but high-maintenance to others. Photo / Natalie Slade

If the residential property market could be guided by a system with the clear supply-and-demand signals of a stock exchange, we'd all be much wiser about the value of our greatest asset.

That's impossible, of course, because all houses are different and a million-and-one elements contribute to value, not the least of them personal taste. A villa may be pretty and romantic to many; but will be regarded as a cold, high-maintenance nightmare to others.

So, unlike the price of uniform shares in a company which are paraded before us each day in newspaper business sections or online, the values of our homes stay uncertain until we actually sell. Only then, when the market comes up with a price we're prepared to accept, do we establish true value at that time.

In the meantime, we are left to wonder - getting a rough-guide lead from new rating valuations every three years and, if we're really interested, a much clearer indication from real estate agency appraisals and formal valuations.

While most of us are happy to enjoy our homes and not fret about value until it's time to sell, it's a fact that much of our wealth is tied up in our properties. That can have a huge bearing on our futures and it's useful to find sensible leads on how things are going.

For people who care about such things - and is there a home-owner who is not at least
vaguely interested in the value of their bricks and mortar? - it can be frustrating to unravel the mixed messages that come from our radio waves, newspaper columns and television channels.

One month prices are going up, next month they're going down. What's happening out there?

The problem is the lack of perspective given by media outlets to median price statistics compiled by the real estate industry.

The statistics themselves (revealed each month by the Real Estate Institute and big players such as Harcourts and Barfoot & Thompson) are of course accurate, but they need explanation to put them in context. Otherwise they send false signals to readers and listeners and distort the true picture.

An example: the lead paragraph in a front page Sunday Star-Times report a few weeks back, focusing on the latest wave of data from the Real Estate Institute: "There has
never been a better time to buy a house, with prices across the country plunging in the past month and buyers having access to the lowest interest rates seen in decades."

Well, the bit about low interest rates was right, though they've been around a little while now. But "prices across the country plunging in the past month" ... where did that come from?

The same sort of stuff happened in a different way through the boom years, with newspaper reports of house prices growing $50,000 a month.

The problem here - and it happens with tedious regularity - is that median statistics are given greater media prominence than they merit, misleading readers and listeners and causing widespread confusion.

When the median price one month falls by $29,000 in Mt Eden/Epsom (as the Star-Times story reported), that does not baldly mean "house prices have fallen by $29,000 in Mt Eden/Epsom". Rather, it may mean that fewer higher-priced houses sold that particular month, dragging down the median but certainly not the value of homes generally. In fact, anecdotal evidence was that overall prices may have risen.

The Star-Times story also noted: "The biggest drop was in the city's eastern suburbs, where the median price plummeted from $902,500 to $755,000." Now, that is a fact, but it is a fact that needs qualifying. If not, the impression is left (certainly from the tone of the story) that house prices have collapsed in East Auckland.

Putting aside the fact that the area is vast and, at any time, one suburb may be doing fine while another is flat, East Auckland is certainly not in general decline. The fall in the median price there that month was directly related to the sale of more lower-priced homes - or fewer high-priced ones - than the previous month.

Anyone with a passing interest in economics may have wondered how tumbling Auckland prices could sit easily alongside a strong rise in the number of sales that the Star-Times also recorded. After all, wouldn't burgeoning sales in a previously flat housing market generally point to price rise rather than decline?

As long as the institute and the bigger companies publicly declare median price statistics, reporters will grab them and use them at face value, seldom digging beneath the surface to discover what is really happening.

The message Property Report tries to deliver is that surges or dips in median prices should be seen as indicators rather than precise tools to gauge overall market direction - and only when volumes are very high and comparison periods are wide. Forget about them for suburbs and towns where little can be read into sales of just a dozen or so properties.

For our centre-fold tables, we zero in on QV's "E-Valuer", which estimates the
current market value for virtually every residential property in New Zealand, based on recent sales of comparable nearby properties (assuming there are enough to allow a sound conclusion to be reached). These individual sales can then be used to estimate value across a wider area, such as a specific suburb. A similar method is used in Australia and the United States.

As well, QV and the institute each operate an index and they are also valuable and accurate guides to changing value, though they don't dig down to suburb level. Their report summaries are covered every month in the media, but often get little prominence because an index doesn't reveal lurching values month-by-month. In the news game, that's just not sexy.