More than one market (long post)
My crystal ball is in for repairs as it doesn't seem to be working...but I am always surprised by the doomsayers pointing to building approvals as an indicator of the health of the property market.
To be sure the building sector is a substantial part of the greater economy, but it is my view (and it's one that has been raised by a few people here in the past) is that there is MORE THAN ONE MARKET.
There's a new home in the ever more distant suburbs market
An inner city highrise unit market
An inner suburbs house market
An inner suburbs unit market
A middle ring suburbs house market
etc...
A waterfront market
A beach market
A holiday apartment market...
yes they are interconnected but a drop in house building (which is predominantly in suburban fringes) doesn't necessarily mean there are less people looking to buy in other areas and price ranges and dwelling categories. In fact it could have the opposite effect...
supply and demand will always drive prices. Demand is impacted by a whole variety of factors, including the price of money ie interest rates, the perceived or actual performance (or lack thereof) of other investment mediums and social factors.
Of course, if anyone knew the exact interrelationships of how all this fits together they'd be worth billions as they could effectively predict the future
What I always think is that statistics, whilst relevant, must take a back seat to the actual deal in front of you. I'm going to make a shocking admission here.......I don't look at the stats very often!
The reason I don't is that I think the factors which go into making a suburb an historically good one for growth are more easily discernable by practical observation. All those things like proximity to city or water, good schools, shops, transport, and more intangible things like the look and feel of the place...is it the kind of area that people (not necessarily me though) would like to live. What I've found, time and time again is that when I do check the stats against this "gut feel" approach, is that the suburbs have good historical growth and reasonable historical yields.
The point to remember is that you don't buy a median priced property. You buy 54 Smith Street, Xville. The particular details of the deal are everything. How cheaply can you buy it? What will it rent for today? What can you do to immediately increase its value and rental yield? What is the extra something that makes this a deal worth doing?
My personal view is that it is better to spend more time combing the suburbs and real estate listings for likely properties, talking to agents, and thinking how you can improve a property to increase your net worth and immediate cash flow than to stuff around with stats about how some hypothetical middle range house has performed in the past. There is no such thing as the median house - every property is different. This sort of statistical analysis might be appropriate with shares and other financial products but I don't think it gives the same level of benefit to residential property investors.
So...when do I use stats? When I'm trying to convince a valuer that my property is worth much more than I paid for it.
But again, the valuer is always, in my experience, far more likely to be swayed by ACTUAL recent sales in the vicinity which were similar types of properties than me just quoting that in Xville the median price has risen 3.4% since I bought the place...
polemic ended...
Cheers
N.