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been surprised at how reactive vendors and landlords are to the
market,” Christopher says.
“ It’s clear vendors are very responsive when considering
the whole market on aggregate. There’s some evidence to
suggest that sellers drive the market, especially when it enters a
new upswing. ”
SQM Research also used a stratified model, rather than a
hedonic model, to get a more accurate picture of asking prices.
Christopher says a hedonic model takes the quality of
the property into account, but it’s not possible to calculate
accurately in this country.
“ A true hedonic model is difficult because the data quality you
need for it just isn’t there,” he says.
“ For example, one of the things that determines a big
difference in values of homes is the slope of the land. If one
is heavily sloped and the other is flat, and the properties are
equal, I can tell you which one is worth more. You might also
say the number of bedrooms are a hedonic measurement but
a property’s value is more than bedroom numbers. I have seen
three-bedroom homes being valued millions more than four-
bedroom homes, because of renovation, etc.”
So for those who love finding data and understanding it, SQM
Research has used the stratified model. It takes the geography
into account, such as the slope and size of a block.
You might also be wondering how postcode areas are
ascertained. SQM Research has used the statistical division of
each area, as measured by the Australian Bureau of Statistics.
The indexes of rural regions and their postcodes are calculated
based on a median of listing prices.
“ For the smaller regions and rural areas where there’s a low
sample size, it’s more difficult. For example, if you look at a
region, somewhere like the inner Brisbane market, prices
in Fortitude Valley are generally higher that further north of
Brisbane. They tend to hold value over time,” he explains.
“ If there’s a disproportionate number of sales in a remote
location and you didn’t make adjustments, it would show an
artificial rise. We use a strategy that makes sure one area isn’t
over-weighted. It enables our properties not to be skewed by
properties in one particular price point at a certain time.
“ If you have lots of properties listed at the higher end of
the market, it would skew that data. By a process known as
‘stratification’ we ensure each location within each region keeps
the same ‘weighting’. ”
You, as an investor, probably don’t really need to worry about
all the nuts and bolts of how the data is calculated. More
important is the actual machine of property investing and where
suburbs are rising and falling.
¿ CONFIDENCE AND GREED
Warren Buffett once famously said ‘be fearful when others are
greedy and greedy when others are fearful’.
Tracking asking prices is very much a way of tracking when
sellers start becoming greedy and expect a lot more for their
property. It could be a good warning sign that you might be
paying too much. Sydney has been a classic example over the
past 18 months. Sellers have asked for more as prices have risen,
and prices have risen as they have asked for more.
Figure 1 shows the correlation between the Australian
Bureau of Statistics House Price Index and SQM Data’s Asking
Price Index. Christopher says it shows just how closely the two
different types of indexes can be measured. You can see that
asking prices started to rise after September 2012 in Sydney and
around that same period, so did sales prices. It also shows the
rate of growth has been slowing in this boom city.
“ The index is suggesting that so far this year, vendors have had
some difficulty in lifting their asking prices above and beyond
what they were able to achieve at Christmas,” Christopher
points out. “We had a massive surge pre-Christmas and prices
shot up very quickly. Since then, vendors haven’t been able to
get prices beyond that point. It means the market is still very
active but buyers are becoming a bit more discerning and
vendors are having difficulty lifting their asking prices.”
This doesn’t mean prices are falling or the boom is over, simply
that the market is plateauing.
“ The boom isn’t over. It’s just that vendors, in terms of their
‘ let’s go for this big pie in the sky stuff’ aren’t achieving it. ”
FIGURE 1: SYDNEY
ABS House Price Index
SQM’s Asking Price Index
FIGURE 2: MELBOURNE
ABS House Price Index
SQM’s Asking Price Index
æThere’s some evidence to suggest that sellers drive the
market, especially when it enters a new upswing.Æ
COVER STORY // WHAT SELLERS WANT
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