The RP Data-Rismark Home Value Index shows that capital city house prices rose on average by 2.8 per cent in the March quarter, or so it says through various sources via Google Newsfeed.
Even “ABC News Online” is being sucked in to publish these irrelevant and irrational figures that state (seemingly categorically for the average reader) that house prices are, on the whole, rising.
One only has to delve a little into this Index to find that it seems to have its basis in the derivatives market and really shouldn’t be used for general public consumption.
The methodologies employed to arrive at the Index are so full of theory and a “view from space” as to be largely irrelevant (in my humble opinion) and not even to be taken with a grain of salt, garlic, or indeed any herb for that matter!
Moody’s said of these indices Perhaps the most exciting methodological development is the introduction of hedonic price indexes to the Australian market. This approach to price index construction controls for compositional change by obtaining information on housing characteristics (e.g. bedrooms, bathrooms, land size, suburb, etc.)…”
I’ve examined the set of variables that are input to this system to arrive at price movements and in my non-PhD way, find many of them fatally flawed and of little or no use to the average person.
The “results” that are splashed all over the media are based on just a set of numbers. Houses and land cannot be reduced to a set of numbers, especially not the way this index seeks to do it. I guess a broad brush set of stats may be of some use if viewed that way but someone trying to make a decision as to whether to get into a market will find the Index next-to-useless.
For example, comparing blocks of land in the same street and “just” looking at the area of the land as a measurable and accurate variable is fatally flawed. I can visualize one street where 2 blocks of land are about 1,000 m2 each. The blocks are only 300m apart. One faces east and has ocean views. The other faces west, slopes badly on one corner and overlooks an industrial estate. The ONLY things they have in common is their street name and area. To compare them in any other way is just ridiculous and anyone who does will cause their statistic to be flawed so badly as to be rendered absolutely useless.
I’m therefore, yet again, cautioning you against these nameless, faceless people who seek to dribble their SPIN into the marketplace and muddy the waters.
Take some time to look at the pricing of a new release of land anywhere. Experienced Real Estate Agents (like me!) are consulted by developers to arrive at pricing. Location, location, location is the only phrase to remember. Smaller blocks of land on the low side of the street, facing west, with retaining walls on 3 sides and a badly sloping back yard are naturally cheaper than the high side of the street, level, north east facing, with no retaining walls and a view of something pleasant. It’s not Rocket Science. There is no such thing as a cheap block of land.
Comparing houses directly by JUST the area, number of bedrooms, bathrooms, pool, garage or carport spaces is just as nonsensical. It makes little to no allowance for age, state of repair, fit and finish, appearance, modernity of design, street appeal and so on.
If you insist on ignoring my advice and want to buy a property, then make sure you compare apples with apples, AND BEWARE THE SPIN DOCTORS.
Til next time…