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Property research mistakes: Where buyers go wrong when using property data

Saturday, 1st Aug 2020

Thorough market research is one of the most crucial steps in identifying great property investment opportunities – whether it be picking up on early signs of a recovering market, identifying future growth areas, or making more informed decisions on where and what to buy.

While we’re very lucky to have access to a range of great property data in Australia, there are a few common traps that buyers often fall into when applying these figures to their purchase decisions, which can lead to misinterpretation of a market’s potential and missed market opportunities.

So how can investors and home buyers use these figures to better leverage a market’s performance? In the video and article below, we take a look at common property research mistakes buyers make when using property data to drive purchase decisions, as well as key strategies they can use to get a more accurate reading on a market’s potential.

Overlooking the significance of market composition

Whilst data can be a useful tool in guiding investors through their property research, a single statistic alone won’t always tell the full story when it comes to property market movements. As an investor, it’s important to not just look at individual figures in isolation when analysing data, but instead to dig deeper into the wider context behind these statistics, in turn considering any trends or bias that may be influencing the results in a specific way.

If, for example, a suburb has witnessed a sudden increase in sales of more expensive properties, this may result in an increase in median house price, leading buyers to believe the suburb has experienced substantial growth. Whilst this data wouldn’t be wrong, the increase in overall house price wouldn’t necessarily reflect all properties within that area, and the results would likely be skewed by the composition of sales. For this reason, it’s often better to view data such as median house price over a longer period of time and in conjunction with complementary data sources such as composition of sales and buyer type to build a more accurate picture of why trends are arising in specific areas, and importantly to identify potential anomalies in data readings.

Basing decisions on historical data

Property data can be great for telling us how a market has performed over a given time period, but read correctly, it can also play a far more powerful role in property research. The key lies in knowing the right data to track to understand where a market is moving (not just where it’s come from).

Many investors will focus the bulk of their property research on indicators such as price growth, often holding off until they see improvements in these figures before exploring market opportunities. The problem is that these are quite often lagging indicators, meaning by the time an area shows visible improvement, it’s likely already in the midst of its growth phase – and the best opportunities may have already passed.

The fact that price growth is really a ‘product’ of other movements across the market isn’t a bad thing! The key for investors is to consider the leading indicators (such as fluctuations in market stock and building approvals) that provide these early hints of a market’s future performance. Used correctly, these indicators can play a fundamental role in helping investors identify great buying opportunities before other buyers are even aware of them.

Applying headline figures to the performance of specific areas

When analysing property market data, buyers will often look at ‘headline’ statistics such as price growth to gauge a market’s overall condition – often perpetuated by media outlets, which will frequently report on these figures.  The problem is that these broader market statistics will rarely represent the direction of all areas and properties within a given market.

Even within one state, different sub-sections of the property market will often experience price growth at different times, and even individual segments and property types within that will not perform equally. As such, an overall decline in median house price (or likewise an increase) doesn’t necessarily mean all areas within that market are behaving in the same way. For this reason, it’s important not to rely on headline figures as the sole indication of where a market is moving, and instead consider the movements of specific  sub-sections when analysing potential growth opportunities.

Adopting this more detailed approach will often help investors identify opportunities that many buyers overlook, and can also be crucial to mitigating key investment risks (such as overheated markets) that other buyers might miss by not looking beyond headline figures.

Applied correctly, property data can be an incredibly valuable resource for buyers, however it doesn’t come without its own set of challenges. At Momentum Wealth, our property acquisitions team have spent over a decade building a refined research methodology, comparing over 40 different data and market-driven factors to help our clients identify the highest-quality buying opportunities.

If you would like more information on how we could support you in your next property purchase, whether it’s an investment property or your next home, contact us via the Momentum Wealth website.