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A famous person once said ‘There are three kinds of lies: lies, damned lies and statistics’. This phrase highlights the point that numbers and statistics can be manipulated to suit any side of a particular argument. For this reason, statistics need to be considered carefully so that you can gain a greater understanding of what is actually happening.
Consider this hypothetical example:
PROPERTY BUBBLE TO BURST! – ‘One hundred percent of experts surveyed stated that the property market is about to collapse’.
This headline certainly grabs the attention but would it really mean much if they only asked two people and one was an expert on shares and the other an expert in tarot card reading!
What about this real example:
PROPERTY CRASHES BY 63%!
Another attention grabbing headline but how reliable is it really? This is based on properties sold in the small South Australian country town of Clarendon and this statistic is calculated on the sale of 1 property in the first quarter of 2012 of $1,310,000 and 1 property sale in the first quarter of this year of $480,000. The property that sold for $1.31m was a relatively new 5 bedroom home on over 20,000 square metres of land whereas the property that sold for $480,000 this year was a 30 year old, three bedroom home on 3,000 square metres of land. This is not comparing apples with apples. This is more like comparing apples with lobster!
The point I am making is that when you are looking at property statistics, you need to ensure two things:
• Firstly, the properties need to be similar in nature, especially in regards to location, house size and land size.
• Secondly, you need a lot of data (e.g. property sales) to make an informed decision. I like a minimum of 30 properties when comparing price movements but others say you need much more.
Rather than just take for granted what appears in the headlines, I like to try and get to the source of the data and do my own analysis. I find that the Australian Bureau of Statistics and RP Data are very reliable sources of information. When you’re doing research for your next property purchase, you might also find these two sources of data very useful.
If you live in Melbourne and you want to be able to interpret statistics to help you make educated and informed decisions, why not come along to our next property investment education course next month? Click here for details.
Happy House Hunting!
Written by Peter Koulizos, university lecturer, author and buyers advocate.