Forecasting what exactly?

On an almost daily basis there is another housing price growth forecast.  They range widely and, at present, mostly in the negative.  Some commentators have changed their tune, with one or two having done so within a month.

Almost all talk about ‘Australian’ house prices, a few break down their prognoses by capital city or region, but very few define what they are actually measuring.

Here is an example from the weekend papers:

“We still see Australia’s house prices falling, but now only -5 to -10 per cent.”

We know that the median is not the same as the average, but in describing a statistic, it also pays to differentiate between the median or average and a more relevant sample.

For example: The ‘median’ house price in Brisbane is $495,000, the ‘average’ price is $550,000 but a recently renovated four bedroom house on a 500m2 to 600m2 lot in Brisbane’s northern suburbs is currently selling for between $900,000 and $950,000.

The values in the first two sets are declining but in the third they are rising, as demand is high whilst supply of that property type is short in Brisbane.

The reason the numbers are different is that the samples are different.

We chop off the outliers in the third set.  This is really useful, because it enables us to be clear about what property or housing market segment we are talking about.

There are many housing market segments, some are doing it tough right now, others aren’t.

As suggested above how a housing market is preforming, more often than not, comes down to supply versus demand in the relevant subset or segment is question.

There is no national housing market, there is no capital city or regional town market neither.  There are really only subsets and they often differ substantially from each other.

It is best to clearly define which housing market segment you are looking at and start from there.  Ignore the generalisations and the talking heads that use such misleading parameters.

Sadly, in real estate, it is the easy things that get measured, and not the things that should.

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