Gareth Morgan, Director of Gareth Morgan Investments
Like a herd of stuck swine, second hand house dealers have squealed with indignation at the Infometrics analysis of last week that pointed to the likelihood householders would be diluting their exposure to housing over the next twenty years. The case for that finding is pretty sound and fairly well-recognised by all but the pushers of real estate it seems. While it is common for vested interests to be the last to admit that they are on to a loser, the scale of the real estate industry’s displeasure suggests their members should recognise the role that faulty data published by their sector lobby group is having in misleading their own perceptions of residential property.
According to the Real Estate Institute of New Zealand (REINZ) house prices are lifting. They use their measure of the median house sale price to base this assertion. While we should be thankful they’re no longer utilising movements in the average house sale price to reach spurious conclusions, partial rehabilitation is only a small mercy. Inferring movements in house prices from a median house sale price is just as bogus an analysis.
The use of movements in the median house price as an indicator of house price movements is easily shown to be naive and totally bogus. For example if during one period three houses are sold, all of value $100,000, then the median house price – the price of the second house is $100,000. If there are no movements in house prices at all but during the next period three different houses are sold – one of $100,000, one of $150,000 and one of $200,000 then the median house price is $150,000. To conclude that house prices have risen 50% would be totally false.
It’s a shame the REINZ doesn’t invest some resource into discovering what a price index is and why it’s necessary and conventional to employ one if one wants to measure industry price movements. Perhaps then they’d deliver their members and a gullible public press, a quality of information worth something. It would have the additional benefit of saving some of their members making dunces of themselves by asserting national house prices are recovering.
The REINZ median house price has risen 3.5% over the year to June 1992 whereas the Valuation New Zealand (VNZ) house price index has fallen 0.3% over that period. They can’t both be right as an indicator of house price movements and it’s the REINZ measure that’s a conceptual cripple, giving quite a spurious indication of what house prices are doing. Conveniently though, from the REINZ perspective it gives a rosier than actual picture of the state of the market.
VNZ data is telling us that despite higher sales volumes of houses over the last year, house prices continued to fall. This is hardly indicative of a recovering market as per REINZ claims. Vested interest groups like the REJNZ have to provide pretty robust analysis if their “findings” are not to be regarded by the public as just tainted propaganda. The REINZ “Housing Facts” publication falls far short of this criteria.