Auckland house prices did not leap by $33,000 in a month

by Alistair Helm in

The October sales report from Barfoot & Thompson had the media jumping around proclaiming that Auckland property prices had set a new record, exceeding for the first time $600,000 and rising over 5% in a month equivalent to over $33,000 gain in just 30 days.

Did nobody bother to read the whole report, or ask a simple question?

The key message in the report that should have been glaringly obvious was that Barfoot & Thompson had sold over 119 properties for in excess of $1million, the highest monthly total since before 2007.

That message should have set of alarm bells. It certainly got me thinking and doing some calculations. If the number of $1million+ properties sold was that high, up from just 78 in September, then it is quite possible that the average price could have been skewed.

Let’s look at the data. Barfoot & Thompson sold 1,081 properties in October with a total sales value of $668,822,370 giving an average price of $618,707. Of the total; 119 properties were sold with a price in excess of $1m. That is 11% of sales in the month, by far the highest proportion sold this year.

Now let's do a calculation to try and evaluate the movement in prices for the majority of properties sold by the company - below $1m. For this calculation I have made an educated guess to say the average price of property sales in excess of $1m+ is actually $1.35m. I have actually used some data I have around the distribution of listings at differing price ranges to give me a guide. By calculating the monthly total value of sales of properties over $1m I can then deduce the average price for the 90+% of the market that is below the $1m mark. 

Undertaking this calculation has enabled me to produce this chart below, which in the grey line shows the reported average sale price for all properties sold by month. This clearly shows the extreme skew in October. The red line on the other hand shows the average price per month for all property sold below $1m - the vast majority of properties.

Now to my mind that line would better reflect the true picture of Auckland property prices. Prices in October recovered from the slight fall in September to continue in an upward trend from $520,000 towards $527,000 in the past 6 months.

I think it is time Barfoot & Thompson reviewed their statistics reporting, choosing in favour of median price over average price.

The fact is statisticians and economists all favour the use of median price for the reporting of property sales – the Real Estate Institute favour median and also go so far as to use Stratified median price, in my opinion the most accurate representation of true property price movements. It is for these reasons that I judge the better view of Auckland property price movements should wait until the October stats are released by REINZ early next week.