Statistics can be useful, useless, or dangerous - take your pick. Why? Because using the same data, 3 different researchers can get 3 different results. My point is - never trust the numbers, unless you know how they worked them out.

I just was reminded about how important this rule is by an article in News.com.au

They are warning people looking to invest in property about how crucial it is for them to understand what exactly they are looking at, but I recon anybody who is looking for a house needs to learn how to read the stats, before making the big decision - to buy or not to buy.

So what is the basic mistake people make in their interpretation of statistics? Comparing apples with pears. This would include comparing houses with units or houses with apartments, comparing 2-bedroom houses with 3 bedroom houses, etc.

Many people don’t know the difference between the median house price and the average house price. This is why, when seeing a median price in some suburb drop, people immediately think “It’s bargain hunting time” - when in reality this could have been caused by many cheaper (or perhaps smaller) houses being sold over the same period of time, or even units.

If the median price was calculated using all the prices, of houses as well as of units - people who are not statistics-savvy won’t suspect that the drop was caused by a shift of attention towards units. Which is a very likely scenario, by the way - as prices of houses rise and become less affordable, people begin buying units, because those are still in their price-range.

Also, different researchers calculate things differently, which is why you can see different figures referring to the same periods of time. According to News.com.au the difference in median house prices coming from different sources can be up to $50,000 - a huge deviation, if you ask me.

The closer to the inner city your target suburb is, the more confusing statistics can get, because in the inner city we have a mix of different housing styles - apartments of all sorts (studio, one-bedroom, two-bedroom, three-bedroom), units, houses (two-bedroom, three-bedroom, you name it). This is again a situation where you’d want to compare apples with apples.

So what is your take-away from this post? First, knowledge is power and if you know how the stats are calculated, you can use them safely, and second - question everything, and see if you can come up with a logical explanation of how this happened.

Have you ever been mislead by property statistics?

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