Statistics Are Fantastic! Aren’t They?

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Super Saturday rolls through and the REIV clearance rate is 61%. Out of a reported 929 auctions, 566 sold at or before auction and a further 597 homes were reported to have been sold privately last week for a total of 1163 sales for the week. This time last year total sales reached 1190. The auction sales were 497 with private sales at 693. The clearance rate in the first week of April was 61%. All these results come to us via the Real Estate Institute of Victoria.

When is the best time to buy a property?
When you see the property you want and you can purchase it for a fair and reasonable price! What is a fair and reasonable Price? What someone else is likely to pay!

The latest Melbourne median house price is in December 2011 was $550k whilst at the end of 2010 it was $580k. The current Reserve Bank cash rate is 4.25%, and at this time last year it was at 4.75% with no change in sight. The All Ordinaries index at its close on Friday was 4420 and as at 31st March last year was 4928.

Do we need any more statistics?

If we looked at the statistics above and not what was happening at the coal face of the real estate market in Melbourne, nobody would be putting their properties on the market. There have been fewer sales than last year, the median house price is down, the interest rate has dropped and the stock market in Australia is lower.

The median house price is calculated by putting all of the sale prices of the houses in a suburb, or the metro area, or whatever area you are calculating, in order from highest to lowest and then take the middle number. To use this method from year to year is fine if you have the same distribution of good, average and poor properties from year to year. You also need the same buying demographic. Are there the same number of investors, owner occupiers who are downsizing, upsizing, going bankrupt, getting paid better etc.

To give you an idea of this let’s look at 11 sales in an imaginary suburb. The sales prices in thousands are as follows, 400,410, 420, 430, 440, 450, 460, 470, 480, 490 & 500. The median is 450 as it is the middle of all the sales. Let us now move forward 1 year and assume that the exact same properties sold for exactly the same prices. In other words the value of the properties have not changed at all. However, there were four fewer properties (36% fewer) put on the market: the 440, 460, 470 & the 490 property. Total sales now look like this: 400, 410, 420, 430, 450, 480, & 500. The median price however is now 430 even though not one house price sale changed yet statisticians would tell you that the median house price has dropped 3.6%.

We know that the sales volume in 2010 was approx. 95,000 sales in the Melbourne metro area and last year there were only about 65,000 sales (31% fewer). We also know there were far fewer owner occupiers looking in the market than investors. So both the volumes and demographics have changed.

Unfortunately, none of these numbers will tell you what your property will sell for next week, nor will it tell you what you will need to pay for your next property. The property market is not the same as the share market. When you decide to buy BHP shares, there is a current listed price and “basically” you buy at that price or not. For the average person there is no “battering” or negotiation. Property is totally different. Every BHP share in the same class is the same as every other BHP share in that class. Every house is different.

If we look at the current demographic, we know that owner occupiers are making up the bulk of the enquiries. This is easy to understand as owner occupiers have been sitting on their hands for well over 18 months and at some stage, regardless of the economy they have to act.

This year I believe we will see the median house price in most Melbourne suburbs increase dramatically. I am also predicting there will be little or no change in the price people will have to pay for a house. The median may move, the clearance rate may fluctuate, but if your property would have sold last year for $500,000 and you present it well, have a good agent who markets and negotiates well on your behalf, I think your property will still sell for $500,000 this year.

Properties nearly always sell at a price that is similar to what many other SIMILAR properties have sold for in the area. It is what the industry calls comparable properties. These are not just any sales in the street, nor are they always the examples the selling agents give you on their handouts at an open (do not forget the selling agent is working for the vendor). A comparable sale needs to be estimated looking at land size, land orientation and aspect, street appeal and location to amenities (both too far away and too close: eg. 2km from train line is too far but backing on to boom gates is too close), The size of the house for accommodation and living space, the feel and flow of a house, the quality of the house, the outdoor living space and car accommodation.

Once you have found and analysed multiple comparables, you can guesstimate what the target property will most likely sell for. This is a far more accurate guide to property prices than any statistical analysis of annual median prices will give you.

If you are thinking of buying a property this year please feel free to give our office a call.

Ian James
JPP Buyer Advocates

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About the author

Ian has been operating his own businesses for more than 25 years. During this time the self taught lessons of building the business, dealing with staff, suppliers, clients and economic woes have been invaluable. Ian is a fully licensed Real estate Agent, a member of the REIV and registered with the Business Licensing Authority.

Buying property is not just sticking up your hand and outbidding your rival. It is an emotional, fiscal and psychological decision that needs to be planned and well executed. Ian is usually involved in over three hundred property negotiations per year; ranging from the $250,000 first unit purchase for a young couple to multiple million dollar residential developments. Ian's business background and endless numbers of negotiations make him one of the industry's leading negotiators.

Ian is married with two adult children, living in Patterson Lakes. He is a keen fisherman when weather and business allows the time.