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The importance of statistical weighting in property data
Investors are being urged to deep dive into the data, with statistical weighting likely to show property nationally has fallen despite many regions still performing strongly, according to research.
The importance of statistical weighting in property data
Investors are being urged to deep dive into the data, with statistical weighting likely to show property nationally has fallen despite many regions still performing strongly, according to research.
In a conversation with nestegg, InvestorKit’s director, Arjun Paliwal, explained how just because “house prices are falling nationally”, it does not mean that every suburb has regressed.
Using the example of Sydney and Melbourne during the last downturn, Mr Paliwal explained how investors who just look at the high-level data will miss out on opportunities in the market.
“Even on a city level itself, Melbourne and Sydney are going to have many other regions within them that are going to have varying performance levels,” Mr Paliwal said.
Mr Paliwal explained that while headline figures are a strong starting point, investors need to understand that it is a high-level number.
“It is important for buyers to remember that people who comment on national data are only doing so to capture maximum audience in one conversation,” Mr Paliwal said.
“It is impossible for any national media, market commentary, chief economist or the RBA to take the whole day to update every LGA in the country.”
Mr Paliwal pointed to the last downturn in the market between 2017 and 2019, when many investors were scared off due to large national figures.
“When Sydney and Melbourne were declining by 8 to 15 per cent depending on the suburb, you now have close to 10 million people out of Australia’s 25 million population in these two regions.
“They weren’t the only markets falling. If you extend it out to Darwin, you have a couple of hundred thousand people, then you have a couple of million people in Perth.
“Now all of a sudden, 15 out of 25 million people are contained in markets that are declining, and as a result that will mean Australia’s data points are showing a declining property market,” Mr Paliwal said.
The researcher pointed out that while it will impact the majority of Australia from a population point of view, geographically it is not all of Australia.
“You have Tasmania during that time that performed fantastic.
“You have many parts of Adelaide, regional Victoria and pockets of Brisbane in the last 12 months that are showing life,” Mr Paliwal said.
“As people go beyond the major commentary, they need to consider weighting data and sample sizes, as that is the biggest part where investors will make mistakes.
“These mistakes come up because people are time poor. Most people that digest national data are doing so because that is all they can in their given days,” Mr Paliwal concluded.
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