Hedonic regression v Stratified median

The end of the quarter is always interesting because three major residential market indicators are released:  the ABS House Price Index, APM’s composition adjusted median house prices, and the RP Data-Rismark Hedonic Home Value Indices.  The results are generally similar, particularly in longer trend terms, however at times of market transition (like now) the Hedonic methodology provides a clear lead on the other indices. 

If you want to find out more about each series and why the results are different across each of the data sets, Rismark’s Christopher Joye has put together a great summary here:  http://christopherjoye.blogspot.com/2010/01/house-prices-for-dummies.html

The graph below provides a clear indication across three key transitionary phases in the market (the data plots the RP Data – Rismark Hedonic Home Value Index for houses only together with the ABS House Price Index). 

RP Data Rismark v ABS

The first shows the commencement of the 2007 growth phase.  The RP Data – Rismark Hedonic series shows the growth phase starting December 2006 whilst the ABS series doesn’t show growth ramp up until March 2007.

The second circle marks the time when the Australian residential market emerged from the GFC decline.  The RP Data – Rismark shows market conditions first started to improve in December 2008 and once again the ABS series was a full four months later, showing makret conditions improving in March 2009.

The final circle marks the current slowing conditions.  Based on the June results of the RP Data – Rismark Home Value Index, June was the first month to see a decline in home values (-0.9% for the month and -0.3% for the quarter) whilst the ABS data shows house prices continued to record gains of 3.1%.

As most industry professionals and consumers alike will agree, the market is clearly slowing down – a fact that is likely to be reflected in the ABS series in three months time.

RP Data and Rismark achieve the more granular results thanks too deeper and richer data sets (we use a properties attributes such as the number of bedrooms, bathrooms and car spaces, and location attributes such as waterfrontage and views), a much more sophisticated measuring methodology than tracking median prices, and monthly analysis rather than quarterly.  The result is a much more timely and accurate assesment of market conditions.

About Tim Lawless

Tim heads up the RP Data research and analytics team, analysing real estate markets, demographics and economic trends across Australia

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