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Stats, Stats Baby
Alright stop, collaborate and listen Blue Wealth is back with a stats depiction! I know what you’re all thinking; I should’ve been a rap star. Fortunately for you I chose the glitz of research analysis and not the bling of rap stardom.
Much of my days are consumed answering questions on the statistics of the property market, so I thought it best to address some of the recurring themes in an article.
Median price
If you sort a set of numbers from lowest to highest, the median value is the one in the middle. Say you have 9 numbers (1 to 9); the median is 5 (4 lower numbers and 4 higher numbers).
Growth
Property growth from year to year depends on the type and value of property sold in that year. I had a question last week on how a Blue Wealth approved suburb could have had 30 per cent negative growth in 2014. However, statistics can be deceiving! It’d take a Great Depression for a crash of that magnitude!
I’ll illustrate with an example; consider a waterfront suburb like Point Piper. In a given year, sales are dominated by waterfront property, in the following year by property a street back. The median price in the first year will be higher than the second resulting in negative growth between year one and two. Need some proof? Apartment growth in Point Piper was recorded as the worst performing in 2014, declining 44 per cent! Now, I’m not aware of a property crash in Sydney’s east but that sounds like good buying to me. Villa del Mare, anyone?
Correlation
We often hear things like ‘rents are positively correlated to interest rates’. This means that rents and rates move in the same direction (rates up, rents up; rates down, rents down). A negative correlation means that two series move in opposite directions. Consider interest rates and property prices; interest rates decline making property more affordable, spurring increases in the property market.
Yield
Yield is the relationship between rental income and the price of your property. Here’s an example;
Property price = $500,000
Rent = $500 per week
Yield = $500*52( weeks in a year) / $500,000
= 5.2 per cent
As always, leave your comments on this and advice for future articles. Let’s get interactive!
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