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Jeremy Sheppard Blog post by Jeremy Sheppard

What exactly does Neighbour Price Balancing measure?

Hi I’m Jeremy Shepherd and I’m talking about Neighbor Price Balancing. This is one of the metrics that we use in our research to help uncover top growth locations for our clients to invest in.

If there is a large price difference between the houses in neighboring suburbs and the houses in a suburb under analysis, there could be some potential for prices to grow, especially if the neighboring markets have much higher prices. It means there’s pressure on our target suburb to grow and catch up and restore balance. That’s why we call it Neighbor Price Balancing, or NPV for short.

Let’s go through an example. Let’s say all the houses in neighboring suburbs are worth around about $500,000 and our target suburb — the suburb we’re analysing — typically has houses for about $400,000 … that means there’s a $100,000 price difference.

If the average distance between our target suburb and our neighboring suburbs is, say, 2.5 kilometres, then we’re talking about $40,000 per kilometre price difference. That’s the technical figure for the NPV.

The NPV can be used to identify markets where there’s this balancing about to occur.

Now, it might not work in every circumstance.

For example: let’s say we’ve got two suburbs right next to each other and ones on the top of a hill and the other isn’t — the one on the hill will obviously have good views, and that means you’d expect prices to be higher. So, unless that hill disappears, we’re always going to expect prices in one market to not outperform, but be higher than those in the other market. So, it’s not a precise indicator that there will be a change in prices. It just identifies the potential for an opportunity of price growth to occur in the cheaper market. That’s why we combine the NPV with a host of other indicators.

If you’re interested in learning about all our indicators, check out our search page.
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