Research analysts – they provide statistics and data that property investors rely on up and down the country, but what exactly goes into their methods?
API Magazine recently put research analysts under the microscope.
We all know about the importance of due diligence, and when it comes to that particular aspect of property investing, we have a lot to thank the humble research analyst for.
The pages of API Magazine are chock full of the data that research analysts produce.
These guys take mounds of numbers and detailed information, chew carefully through it all, and spit out a nice pile of easy-to-read reports telling us all sorts of things about what’s going on in the property market – either for the suburb we’d like to buy in, the state, or even the country as a whole.
But where does all this data come from?
And how should we go about using it to our best advantage?
And why on earth does it seem to vary depending on which organization provided it?
We decided to go straight to the source and ask three analysts exactly what it is they do…
Day to Day
It’s a question research analysts have to field frequently, but what exactly is it that they do?
Research manager at Australian Property Monitors (APM) Odi Reuveni sums it up:
“As a research analyst my job is to make sense of a very large amount of data.
“In my role I aggregate meaningless data to useful information and clearly present it to end users.
“On a normal day I review clients’ data requests (e.g banks, real estate agents and journalists) and work out the best product for them. I then prepare the data and send it to them.
“We’re often asked to work on larger projects for national real estate groups, which involves the preparation of reports across several states using multiple data sets.
“It’s very rewarding to hear that a client gained important market insight by using our data.”
After achieving his bachelor of Applied Sciences in Property Economics he started out in property developing but soon realised that, as he’d always liked statistics, property analysis was more for him.
That was 12 years ago and he’s been going it ever since.
The job is obviously something Kusher’s pretty passionate about – and knowledgeable.
“A popular misconception is that we just do media. Our job entails a lot more than that.
“A typical day can involve lots of report writing, presenting to a number of clients, we have to stay abreast of what other people are saying so there’s a lot of reading involved, and also taking in the data that’s released…even just having time to form an opinion of what’s going on and what’s going to happen.
I think also there’s a misconception that because we’re providing information to the industry, that somehow influences our opinion on things,” Kusher says.
“Particularly here at CoreLogis RP Data, our CEO’s always been an advocate for the fact that we don’t report to sales, we don’t report to marketing, we’re not influenced by anyone else – we’re free to form our own opinions on what the market’s doing.
“It’s in our interests, at the end of the day, to tell the truth about what we think’s going to happen. It makes our customers better aware…and better able to plan for what may or may not happen in the future.”
So, where do the original numbers on property sales and rentals come from?
A range of sources, Kusher says.
“In Australia, unfortunately, the data you get from the governments and councils only has limited information, it only has the lot size (the physical lot that the property sits on) and not too much other information, so we supplement that information by capturing listings data, which includes thins like the number of bedrooms, the number of bathrooms and in some instances the internal area.
“We capture the photos as well,” he says, “to get an idea of what the property looks like, what sort of condition it’s in. “We use all that information to put together our hedonic indices (more on that later).”
Kusher says it’s surprising to many how raw the data is in the beginning.
“The base database has always been provided by the governments – local governments, local councils, those sorts of people – and then it’s really a matter of how you clean the data, what rules you have when measuring the data, what you exclude, what you include, and you methodology for measuring the data.”
Why So Many?
If you’ve ever read through the data from the various different property monitoring organisations, you’ll probably have been a little puzzled as to why the information sometimes seems to suggest different things.
Reuveni explains that, in actual fact, the data remains largely unchanged between one source and another:
“However, timeliness and the methodology used by each of the various sources often affects the end figures,” he says.
It takes an average of 52 days for property to settle in, say, New South Wales.
Once the property is settled it’s registered with the government department and the details are sent to us.
Even when we leave enough time to capture the majority of transactions, variations occur as more properties ender the database.
Different companies also collect data from other sources.
At APM Price Finder we regularly collect data from Domain and other Fairfax publications.
Despite entering our system daily, this timely data represents only a portion of total transactions and hence can only be relied on for selective purposes.”
CoreLogic RP Data, on the other hand, does it slightly differently.
“In fairly simplistic terms, what we do is look at all the information we’ve got and take into consideration items like the number of bedrooms, car parks, the quality of the home, and then we basically say ‘if every property in this city or in this area was to transact today, knowing everything we know – all the sales and pieces of information we know – what price would that property sell at?’
We essentially do that every day.
Every other methodology looks at sale prices, so ‘repeat sales’ looks at the same sales price over time and measures the change, or ‘stratified median’ matches properties that are similar based on price and measures the change across those strata.
What we try to do is take a more holistic approach, because only around five to seven per cent of properties sell each year, so…if you are measuring from a period to a period, you’re not measuring one basket of properties that sell compared to another basket of properties that sell.
Our method attempts to take some of the bias that you may see when simply using a median out of the analysis.”
How to read the data
Our three research analysts give their tips on how best to use the data they provide.
CAMERON KUSHER, CORELOGIC RP DATA”
- Use it as a benchmark: “Say to yourself, ‘this is what the typical home across the area is doing, is the home I’m looking at or the home that I own better than this, worse than this…where does it compare? That’s the best way for investors to get an idea.”
- The data is broad, it’s general, so it should be a guide: “If you’re doing worse than what the data’s saying, maybe your investment isn’t the best or there’s a way to improve the investment. If you’re doing better, obviously that’s a good thing.”
- Delve deeper yourself: “Do your own analysis – go to open homes, look at recent sales ad figure out how or if it’s relative to the homes that you own or the properties that you’re looking at.”
ODI REUVENI ,APM
- Read beyond the headlines: “The median price we provide, as well as time on the market and discounting figures, provide a good snapshot of the investor’s target area. However, as each property is different and an area’s stock is seldom homogenous, investors are encouraged to overlay our figures on top of factors such as population growth, amenities and infrastructure to gain a full picture.”
- Take into account adjustments: “Investors must remember that the shorter the time from the end of the reported period the more the figure is likely to be adjusted in the future.”
- Recognise that it’s not specific: “Bear in mind that when we talk about a median price, we essentially refer to a particular dwelling that may be different to your dwelling of interest.”
YVETTE BURTON, REIQ
- Timing: “Bear in mind the timing of when these reports come out…some of the data will come out in the first week of October for the September quarter and…well, that’s not really possible, because there aren’t enough sales in the system.”
- It’s not an exact science: “At the end of the day, it’s all about looking at the trend of figures, essentially, not so much exact numbers at a certain point in time.”
- Be mindful of medians: “In suburbs where a lot of new properties will come onto the market, like a master-planned community, that changes the whole scope of what type of properties there are in that location, so the median value will look fantastic over the time – but that doesn’t mean all properties have going up that much. You can’t paint every property with that figure, but it’s a good guide, to compare one suburb to the other.”
METHODOLOGIES IN THE MADNESS
Hedonic Index (Used by: Corelogic RP Data)
Definition: Imputing properties’ values based on a range of characteristics other than just sale price ad size.
According to Cameron Kusher:
“We look at all the information we’ve got and take into consideration items like the number of bedrooms, the location of the property, the number of bathrooms, car parks, the quality of the home, and then we basically say, ‘if every property in this city or in this area was to transact today, knowing everything we know – all the sales and pieces of information we know – what price would that property sell at?’…
We’ve gone to the trouble to do a methodology that’s very difficult.
It requires a lot of effort and cost to go and collect the data that we need to make a hedonic index.
We try and provide a lot of transparency around what we’re doing.”
Stratified median (Used by: APM)
Definitions: Stratifying house sale prices into different categories (of houses that are qualitatively similar), then using a median to reach an estimate of overall property price changes.
According to Odi Reuveni:
“We aggregate data from similar regions into a capital city median. This method, in our view, yields a true representation of price movements.”
According to Neil Tan:
“The content team calls agents on the weekends for auction results (also done mid-week), which ensures we get results as soon as they’re available.
Valuer-General data is also supplied to us and used to confirm agent-collected data, and Domain listings and sales data is shared with APM, too.”
Repeat sales (Used by: Residex)
Definition: Using multiple sales prices (at least two) of a particular property over a certain time to try and establish property price changes over a period.
According to Residex:
“Residex indices consider all properties in a market to determine market movements – recently sold (median price index), established and previously sold properties (repeat sales index) and properties with detailed attribute data (hedonic index).
This is vital in preventing skewed results that could overshoot or undershoot true market movements and values.”
Yvette Burton is the research analyst for the Real Estate Institute of Queensland (REIQ), and she says that they do things differently again.
“We focus more on actual sales numbers, just to give an understanding of what stage you are in a property cycle,”
My job really is analyzing – rather than crunching the numbers, I’m looking at the numbers to see what they are saying.
We use CoreLogic RP Data for sales transactions…and they don’t come through until a contract actually settles.
The thing with Queensland sales data is that there’s a delay…the property has to settle before it comes through from QVAS (Queensland Valuation and Sales system).
It gets sent to CoreLogic RP Data, then they upload it for us, so there’s that bit of delay.
We run our quarterly reports five weeks after the end of the quarter, and at that point there are roughly about 60 to 70 per cent of sales in the system for the period we’re reporting on,
Because we know we’re not capturing all property sales in that point in time, we like to compare, say, the September quarter report to the June quarter report that we ran a few months before, so we’re comparing like with like, especially from a sales number point of view.
I don’t want to be running my September report and then comparing it to revised June quarter figures, because that’s going to be capturing 90 per cent of sales, so it’s going to underestimate or overestimate the drop in activity.
That’s why we compare preliminary with preliminary…that way we can better track trends in sales activity.”
Why so different?
As well as the different methodologies in use, Burton has another explanation for the multitude of different data sets available. She says:
“We’re living in an information age.
Everyone wants more and more information, so there’s that demand for it.
Buyers are investing thousands, if not millions, of dollars into a property. They want access to that information…it’s just the market meeting that demand.”
To negotiate the maze of information on offer. Burton points out that it’s a matter of being aware which type of measure companies are using.
REIQ’s is the most simplistic out there at the moment, it’s the easiest to understand.
There’s merit to every measure, but we’re focused on just tracking market activity, and being a bit more generalist about what’s happening.”
Day in the life
We asked our analysts what a typical day in their lives entailed.
APM’s Reuveni explains his role as research manager earlier in this story.
Junior to Reuveni at APM is Neil Tan. A typical day for him primarily entails preparing data for editorial content, weekly sales results that go in the papers, supporting data for Domain editorial and external media requests.
Weekly, monthly and quarterly responsibilities for Tan, he says, include
“preparing property data reports for client deliveries, as well as internal reports for marketing and business analysts.
This includes monthly data drops for API.
Other tasks involve monitoring and preparing usage reports for clients and data suppliers and responding to queries about data available from APM research.”
CoreLogic RP Data’s Kusher tells how varied his days tend to be.
“A lot of it’s looking at the data we get; we get a lot of data feeds every day.
I probably start off the day reading the newspaper, just seeing what people are saying (I usually read the Financial Review, The Australian or both), then working on reports – we’ve usually got one or two coming out.
Some new data might come out from the Reserve Bank or the ABS (Australian Bureau of Statistics), so I’ll be looking at that data, putting it into our spreadsheets and maybe writing a blog on that information.
I’ll work on writing our weekly newsletter, responding to media enquiries, working through reports (about 20 a year), responding to in-house questions, setting up times we’re available to go and do presentations for clients.
The presentations take me all over the country, even sometimes overseas.
We’re lucky in that we don’t have too many meetings, but we’re kept quite busy by the media and the reports we write.”
REIQ’s Burton says:
“My days are basically just keeping track of the most recent data that’s available and constantly reviewing how we do things.
I tend to have a couple of projects running at the same time, whether it’s the quarterly data or our vacancy rates rental survey.
As well as responding to media requests, she says, “I’m constantly assessing the most recent market indicators that we have on hand, keeping abreast of what’s happening and speaking to agents where I need to.”
What do we get out of it?
Now we know how they do it, how can it all benefit us?
Burton says of REIQ’s analysis:
“We help investors to be informed about how various property markets are performing, in terms of sales activity, how quickly properties are selling, how many are selling, and what prices are doing so they can gauge how well a market is performing over time.
“As an investor, you’re not always looking at the same spots…you want to have a handle across all markets and know how they’re performing.”
APM’s Neil Tan points out further ways data can help.
“Price trend comparisons for smaller geographic segmentations can highlight gaps in the market that investors can take advantage of, and identifying capital growth via changes in price per square metre in areas can benefit investors in determining feasibility of prospective investments.”
This article first appeared in Australian Property Investor Magazine – Australia’s #1 Magazine for property investors and is republished with their permission.