Seven rules to live by when weighing up property statistics
Making sense of the numbers that collectively form the basis of the biggest investments of our lives is fraught with obstacles and unseen influences, so here are seven rules to adhere to in deciphering the digits.
Understanding statistics can be a tricky business, especially when they’re related to emotional topics like house prices or the economy.
Here are seven rules to help make sense of statistical claims:
- Emotional reaction: Notice how you feel about a claim before accepting or rejecting it.
- Viewpoint: Combine the big picture view with personal experiences to get a more balanced understanding. This is what I call the ‘bird’s eye versus worm’s eye’ view.
- What’s actually said: Take time to understand the details in charts and tables, including labels, footnotes and data sources.
- What’s missing: Consider what data might be missing and how including it could change the conclusions.
- Who’s saying it: Look at the source of the statistics and consider potential biases or agendas.
- Comparison and context: Compare statistics to relevant benchmarks and consider the broader context to gain perspective.
- Timeframe and relevance: Think about the timeframe over which the statistics apply and whether they’re truly relevant to the topic at hand.
My last rule is the most important.
Front page news as a property guide
When you are digesting information, I think it is vital to ask if the data is relevant and if so, then on what timeframe does this relevance apply.
It is best maybe to think in terms of the front page of the newspaper.
There are typically a handful of stories on the front page, one of which leads with the biggest headline and usually the ink takes up about quarter of the front-page space. A second largish news account is next, followed by some smaller posts roughly of similar size.
So, what are the five or six things that really matter when understanding the topic in question?
But there is a variation to the usually daily headline.
It is even more pertinent to view your own ‘front page’ not through a daily prism but a longer timeframe. Weekly maybe, monthly maybe too, but annually would be better. But for many things a ten-year; generational or even lifetime horizon might provide more clarity.
For example, for mine, any daily housing index is just noise. Ditto the monthly and even quarterly figures. I think it is better to think on an annual basis and then best over a ten-year or longer period.
By following these rules, you can develop a more critical and informed approach to understanding statistics, whether they’re about housing market trends or broader economic indicators.
Housing market research
When it comes to the stuff that matters with regards to the housing market, may I suggest:
- Market depth is important i.e., number of sales by price group and the underlying housing demand for housing it that area.
- Supply, both new housing development and stock for sale matter too, and especially understanding the constraints (or otherwise) that impact that supply.
- Timing also matters. Where is the market’s position in the property cycle and how has that marketplace behaved in the past?
- What support is there? What is the relevant demographic, psychographic and economic trend?
- Locational attributes. Is the locale unique and if so, why and will that distinctiveness add value to your asset?
I must admit it’s tough to apply my seven rules rigorously every time, but curiosity remains key. Questioning, staying open-minded, and fact-checking are essential.
Often, what we hear about the real estate market is influenced by recency or volume rather than accuracy. It’s a reminder to dig deeper, challenge assumptions and seek the whole story.
