Leading property market researcher CoreLogic has revised the methodology it uses to compile its Australian residential market indexes, promising a more comprehensive view of market activity and less volatility in its monthly data.
CoreLogic uses a statistical technique called hedonics, which measures the change in value of all dwellings in its sample, not just sale prices.
Values change when houses are renovated and bedrooms and bathrooms are added. Other factors that feed into calculations are market activity in the area, as well as changes to school zones, public transport facilities and so on.
When CoreLogic reports on the market each month, it is updating valuations on the 10 million dwellings in its series, not just the sales results reported that month.
“It is a portfolio value measure, not just a transaction measure,” says CoreLogic head of research and analytics Tim Lawless.
“Only 5 per cent of properties trade each year. This means that transaction measures suffer from sample bias. Portfolio appraisals look at the whole market.”
Lawless says that while CoreLogic was revising its statistical methodology, it moved to Amazon Web Services, a cloud computing service.
“We are working in a scalable environment and that allows us work with historical data more easily. We are using the full extent of our data sets back to 1980.
“Testing is easier, production is faster. We can do bespoke work more easily.”
CoreLogic has a $20 million annual budget for data, which it acquires from 700 databases.
Lawless says the revision has resulted in better sampling, improved asset weights and more appropriate treatment of apartment developments.
“We are seeing more and more unit construction. Transactions are bulky and settlements may be over two years. It raises questions about the value of those sales in today’s dollars.”
The outcome of all this, Lawless says, is less volatility, improved valuation estimates and full geographical hierarchy of reporting.
According to the latest results, released on Friday, national dwelling values were unchanged in August and rose 0.5 per cent over the past three months.
Sydney values were flat over the month and up by just 0.3 per cent over the quarter. Melbourne values were up 0.5 per cent over the month and up 1.9 per cent over the quarter. Brisbane values were up 0.2 per cent over the month and also up 0.2 per cent over the quarter.
Values fell in Darwin and Perth in August.
As for the outlook, Lawless says CoreLogic’s view is that the market is cooling but there is little prospect of a substantial decline.
“Over the past five years we have been consistent in saying growth rates are not sustainable. The quarterly growth rate peaked in November last year. Growth is slowing in Sydney, Melbourne is more resilient and Brisbane is still soft, with no momentum,” her says.
“We don’t see a substantial decline unless unemployment goes up or there is a financial shock. The Reserve Bank is mindful of household debt levels.”
