The recent post “Property price data can be confusing – median price / average price / property values” highlighted how with 2 main reporting sources of property price statistics in NZ there can naturally be some confusion.
To provide some assistance to try and help better understand how from what is essentially the same data such differing trends can be reported I have provided in the graph below the tracking of the reported pricing from REINZ (The Real Estate Institute) and QV (Quotable Valuations) over the past 3 years.
The graph shows 3 price reporting statistics – REINZ Median price(blue line), QV 3 month moving average price (orange line) and REINZ 3 month moving average price (red line). Clearly none are exact matches of each other and as shown each represents a different ‘peak’ date in the market and a different level of price decline from peak – the largest is the REINZ 3 month moving average currently down 7.7% from the peak of May 2008.
As stated the prices all relate to transactions of properties in NZ, however the difference comes from the time period and the sample of data.
In terms of timeliness REINZ data is the most up to date, compiled as it is from reported unconditional sales in the preceding month by real estate agents submitted data. QV is based on legal transactions and therefore is is based on sales transacted 4 to 8 weeks in the past, it is for this reason that QV report based on a 3 moving average (which is statistically appropriate).
In terms of comprehensive the QV data reports all transactions as legal title changes which means it includes all completed sales by licensed real estate agents as well as private sales and any related-party sales. Whilst there are no accurate records from anecdotal evidence the level of private sales and related-party sales usually amount to around 10% of all legal transactions.
The next issue in making sense of the statistics is median price vs. average price – whilst on the face of it they are similar they can be harbingers of factors that can easily skew the presentation of facts.
The average price is simply the total of all transactions divided by the number of transactions otherwise known as the mathematical mean. In terms of property prices average prices can be skewed if the sample of sales has extreme transaction values within the sample – it is for this reason that a moving average measure is used to ‘smooth’ out these anomalies.
The median price is the matherical midpoint price of a sample of transactions. With a large sample set this statistic provides a good single snapshot for the representative price and is very useful for timely data presentation. One issue with median price in the context of property sales is the fact that the transaction price is usually set at “large increments” – what I mean by this is how often have you seen a property sell for $453,635.55! – none! – sales tend to be at the level of $450,000 or $455,000. Due to this what can happen is that the median could lie within one record of the split between $330,000 and $335,000 – and the reported median price figure could based on a single transaction out of 5,000 be presented with a variance of $5,000.
Additional details on QV statistics
Whilst QV and REINZ both report sales price as detailed above, QV primarily reports the Property Valuation Growth. This % variance has been reported on since January 2005 and shows the year on year growth / decline of property valuations to sales based on a measure of the sales price of each property sold compared to its capital value.
It is interesting to compare the QV statistic of Property Valuation Growth as against the reciprocal data from REINZ – in this case the % year on year variance of average sales price (based on 3 month moving average). As can be seen from the graph below the two lines track very closely with each other.