Property price growth cycles start in a central point and ripple outwards gradually: Hotspotting's Terry Ryder

One of the great absurdities of real estate research is the notion that you can encapsulate price growth for a major city in a single figure. 

The Greater Sydney area has a population of 4.82 million (2016 Census) and contains over 700 suburbs. They include markets as diverse as Macquarie Park versus Macquarie Fields and Newtown versus Campbelltown.

They’re not all doing to the same thing at any one time, nor moving at the same speed.

But the research houses would have us believe that you can distil all the sales activity in these contrasting places into a single growth figure that makes sense.

It’s crazy to even try, but that’s what they do. And media laps it up, so long as it’s presented in a neat little media release package that makes journalists’ lives really easy.

This may explain why Sydney house prices are growing at an annual rate of 7.4 percent if you believe SQM Research asking price growth index, or 4 percent if you trust the latest figures from Domain, or just 0.1 percent if you think CoreLogic is the bee’s knees in real estate data.

Melbourne house prices are growing at either 8 percent, 11.3 percent or 23.6 percent in annual terms, depending on your source of choice.

The Adelaide is rising, or falling; the Perth market is recovering, or not; and Canberra is up 5 percent or 18 percent – all dependent on which report you read most recently.

In my view, all real estate data is rubbery figures, to some degree.

And it’s adds an extra level of absurdity when economists, the least informed species about residential property on planet Earth, discuss Australian real estate as a single market. They all do it and media reports their misinformation daily – because if they have “economist” in their title they must be credible, right?

The reality is that we have a five-speed market in just the eight capital cities – and within those cities they are many different scenarios playing out.

We never have a situation in a major city where all parts of the market are rising (or falling) in unison.

Generally speaking, cycles start in a central point and ripple outwards gradually. The up-cycles in both Melbourne and Sydney began in the so-called prime suburbs and gravitated outwards over 3-4 years.

It’s a signal that the cycle has almost run its course when the areas with the most sales activity and price growth are in the outer-ring suburbs. We’re at that time right now with both our largest cities, with the Camden LGA one of the few remaining upwardly-mobile markets in Greater Sydney, and outlying areas like the Hume LGA and the Wyndham City LGA the strongest markets in Greater Melbourne.

What’s happening with our major markets makes a lot more sense when you chart them using sales volumes, rather than changes in price measures. 

The latter method is fraught with potential for aberrations, with the results dependent on methodology and other factors, as the figures presented earlier illustrate very clearly.

Sydney house prices are not growing at an annual rate of 4 percent, as Domain would have us believe. Some suburbs are growing more than that, others are at the point in the cycle where they’re not growing at all and some have values going a little backwards. A few areas, particularly those close to over-supplied apartment precincts, will have larger declines in values.

But none of that will be conveyed to real estate consumers – they’ll be given a single misleading figure encapsulating the whole city, only to be contradicted a few days later by a different number from another source.

But the sales activity figures (which we examine every quarter for The Price Predictor Index) seldom lie.

They’re revealing in all sorts of ways. For example, how about this question: when did the Melbourne market peak?

For in the swanky inner south-eastern suburbs such as Hawthorn (median price $2.1 million) and Canterbury ($2.9 million), it was early in 2014.

For middle market areas like Blackburn ($1.3 million) and Oakleigh ($1.2 million) it was the early part of 2015. And outer-ring precincts like Cranbourne ($480,000) and Carrum Downs ($500,000) hit their high points late in 2016 or early in 2017. Other outlying areas arrived at that point towards the end of last year.

It shows the many different market scenarios in play across the nation – and the degree to which economists and other commentators misinform consumers with their one-size-fits-all approach to real estate analysis.