Lies, Damn Lies and Statistics

Lies, Damn Lies and Statistics

Private Property South Africa
Lea Jacobs

The latest trend in information technology has been big data; the emphasis being on big. There's a very good reason for that. As any statistician will tell you, using a small sample size can give a totally distorted picture of reality. This applies equally to property statistics.

"The last few years have seen detailed property statistics flood the media at a pace never before experienced in South Africa, but as these usually focus on the latest fluctuations and not on the big picture, they have often created misunderstandings and misconceptions," says Bill Rawson, Chairman of the Rawson Property Group.

This applies equally to buyers, sellers and agents. Property is and always has been a long-term investment. Therefore, looking at a small data set - for instance, the last few years in a suburb - won’t give you proper insight as to what is really happening on the ground.

The old adage "A little knowledge is a dangerous thing" is never truer than when interpreting property figures, says Rawson, and property economists can add to the confusion by drawing different conclusions from roughly similar data. This is then often dramatised by the press.

"Comparing what is happening now to what was happening year ago can make a balanced, stable market look like a disaster. Similarly, what is happening now can look like a boom when compared to a year ago."

However, in the overall scheme of things, these short-trends may induce one to buy and sell at the wrong time, and for the wrong price. Nevertheless, always bear in mind that a little knowledge is better than no knowledge at all. For example, tracking the past few sales of a specific property will definitely give you some idea of what is going on. The caveat is that it is not a predictor of the future.

"The public tends to look at quarterly and year-on-year analyses and become optimistic or pessimistic as a result. However in property, the truly relevant figures are those that cover a period of eight years or more," Rawson points out.

The key appears to be a balance between blending your analysis of big data, long-term trends and specific knowledge on the ground.

"Short term forecasts," adds Rawson, often do not take into account such factors as regional trends (for example the Cape winter, which traditionally depresses the market), the six month lag before a change in interest rates is felt (a 0,5% rise or fall will increase or decrease sales by 5 to 7% a year later) and the changing patterns in buying ( the Y generation, born after 1970, will typically change houses within two to three years of the first purchase, immigrants within four years and families between five and seven years).

However, he adds, if you look at the long term statistics in South Africa, all of these variables are accounted for.

"The spectacular rise in sales and prices from 2003 to 2008 was followed by the slump of 2008 to late 2010 but since then the sales figures show that the market is slowly coming back to life. Currently the market is less active than before but it is also more stable and, therefore, more sustainable."

Three years from now, says Rawson, economists will most likely be saying that the steady, albeit slow, growth period was better for the SA property market than the previous boom. Something to bear in mind: for every expert who gazed into his statistician's crystal ball and got it right, there are a multitude who got it wrong.

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