Property statistics can be misleading

[muppet]

Property statistics can be misleading

When the news media report that the median house price in Auckland has risen 13% over the past year, from $562,000 last March to $637,000 – that’s an increase of over $6,000 per month!
This type of property news infers that property values are rising, and rising fast; as it's getting more expensive to buy houses – that would be a good interpretation – right?
Well actually no. You cannot make that inference. To hear that the median sale price is rising does not infer values are rising by the same amount.

Now you may consider that I am arguing semantics. However, I regard the difference between the rise in property value and the rise in median sales price as highly significant. It's a significance that too often seems to be ignored or glazed over for the sake of a good headline.

The median price is a statistic calculated from the aggregated data of all the properties sales in a month in an area – a suburb, a region or the whole country. It should not be taken as an indication of the likely trend in value of a property in that self-same area.

Each year just less than 5% of all properties are sold – that is 1 in 20, which tends to amount to less than a handful of properties on any given street around the country. The fact is that these properties recently sold might not be representative of all of the properties on the street in general.

Read more at

http://www.nbr.co.nz/article/property-statistics-can-be-misleading-dc-155895

[Perry]

Ahhh, lies, damned lies and statistics. Who benefits
the most from median price figure representation?

[McDuck]

The median is just the middle one.

Say the numbers were 1,2,3,4, 5.

Then the "3" would be the median... a bit off, because halfway is really 2.5.

Strangely, if the numbers were 1,2,3,9,10, the middle number would be "3".
That's really out of whack with the halfway point.

Since the median is one of the actual sales, it would be interesting to see a newspaper article about that exact sale. Where it is, what the land area is, what income the people are on, education...ethnicity, etc etc.
Finally I could meet the average Joe...(sorry "mean" Jo).

[McDuck]

Ahhh, lies, damned lies and statistics. Who benefits
the most from median price figure representation?

You know Perry, the more I think about this, the better and better your question is.

The great thing about the median is that it is real. Since there is this actual real sale that occurred, you can compare yourself and your situation against it. Against something grounded in normal everyday life. Much harder to fudge that with spin.

The one thing about this " median person", with their "median purchase" that I really want to trace is the ownership of the property.
Who really owns that property in the wider picture?
Since a bank loan is often taken out to buy a house, the ownership of the house is really not totally with the average Joe.
Really the Bank owns most of the house until the mortgage (plus a tonne of interest) is paid in.

I would love to trace the path of money back to the real owner of "median Joe's" property.

I guess the Bank tenders out for huge pools of money, then reloads it.
You would have to look into that bulk funding stream and see who was ultimately at the end of it at that time.

[Leftette]

The median is a more respected number than the average, though. Assume 10 places sold for $300,000 and 1 sold for $20m. The median is $300000, but the average is over $2m. Which better represents the typical sales price?

[speights boy]

Which better represents the typical sales price?

Sure median is better than average.
However, it would be a lot more informative to have the medians of a few sub sets.
Either in price brackets, or different types of properties.

Take LVR restrictions for example.
Remove numerous property sales from the lower end of a market and the median sale price increases.
This will be reported, however tells us a lot less about what is happening inside each price bracket or subset type; and it not necessarily reflective of the market as a whole.

I think that is one of the points Alistair is making in his article.

[McDuck]

The median is a more respected number than the average?..

All good, but you're missing Perry's main observation.

He's saying, don't follow the numbers, don't follow the money, but rather follow the people and their intentions.
Quite nice really.
At the end of every report (using statistics), is a person with a barrow to push.
I took his Idea and applied it to my interest. I figure Perry's observation can be applied to the median in another way.
If Joe average is the real person (on our end of the loan), the question can be asked, who is the real person at the other end of a rather convoluted set of transactions?. Who finally really holds the deed to Joe's house?

[donthatetheplayer]

Since the median is one of the actual sales, it would be interesting to see a newspaper article about that exact sale. Where it is, what the land area is, what income the people are on, education...ethnicity, etc etc.
Finally I could meet the average Joe...(sorry "mean" Jo).

I like this idea. It would be great if the exact sale / specific property was recorded each month. It would be very interesting to compare the properties from month to month.

[speights boy]

If property investors can not stand the heat they should put their money into something more productive Bill English and Nick Smith say.

If an owner of one of the properties you manage sells, what generally happens to the tenant ?
Who lives in the property when under its new ownership...generally ?

[Viking]

If property investors can not stand the heat they should put their money into something more productive Bill English and Nick Smith say.

Well Glen, you Nelsonian's keep voting the useful idiot in and Bill has to stay to keep him from wrecking everything. The sooner both are gone the better so start a crusade in Nelson.
Rid the industry of pests. Don't vote for tricky smith.

[Tulip]

Hi Viking - I don't think Glenn was necessarily agreeing with the statement, just saying what the politicians are spouting.......

Just for anyone's interest, I have bought 3 properties (only one has the horrible tenant) since 2010. When doing my tax the other day, I was working out whether the venture had been profitable for me, and whether, if I'd put the same amount of money into the bank, in a savings account, instead of into huge mortgages, whether I'd have done just as well. You may be interested to know that the property prices fell after I bought, which doesn't matter a jot if you're in it for the long haul. I will be, as basically the houses are owned by the banks and I put almost all my pay into home loans to service them and will have to do so for the next 9 years, more or less. Working out what they're worth, what I've spent and whether it would have been easier not to bother at all with property I was sadly surprised to realize that I shouldn't have bothered to buy at all, just saved the money instead. The only thing about home loans are that they force you to save (sort of!) that money. Would I have put most of my wages into a savings account in the bank - I somehow doubt it. I was rather disappointed though to find out that property investment doesn't pay much, unless the value of the houses rise (a lot). However I've only been a slave to the bank for 4 and a half years, and things may change.
Any one else think the same?

[speights boy]

I was rather disappointed though to find out that property investment doesn't pay much, unless the value of the houses rise (a lot).

That's the argument that never finishes though.
A loss, or very small net income due to large debt.....versus long term capital gain.
One is taxed, the other is not.
The argument around this issue will NEVER cease.

There is no doubt however that the effective tax rates for property versus fixed interest are very different.

[Glenn]

If an owner of one of the properties you manage sells, what generally happens to the tenant ?
Who lives in the property when under its new ownership...generally ?

That question got me thinking. One villa which had been a block of character flats got purchased and turned back into a grand house for one family.
One executive house that a senior policeman from Canterbury had purchased new got sold at a loss to an owner occupier.
One got converted to a commercial premises.
And a number got sold to other investors and they either kept the tenants on or found new ones.

[Glenn]

If property investors can not stand the heat they should put their money into something more productive Bill English and Nick Smith say.

Well Glen, you Nelsonian's keep voting the useful idiot in and Bill has to stay to keep him from wrecking everything. The sooner both are gone the better so start a crusade in Nelson.
Rid the industry of pests. Don't vote for tricky smith.

I do not want to change the Government I want to change their policies.

[speights boy]

So, overall pretty balanced.

A couple of owner occupiers were happy;
as was a commercial tenant,
as were some new landlords and their new or existing tenants.

I'm trying to figure out why some investors selling is such a bad thing.