You often hear people talking about the real estate market, as if it was some kind of real entity in the same way as there is a share market and a futures market. There are a number of different forms of real estate, not just residential. Retail real estate is for shops and businesses that deal with retail customers.

Commercial real estate is office blocks, from a suburban cube farm at an accountant firm through to CBD office towers. Industrial real estate is for manufacture and storage, usually in the form of huge sheds with very high ceilings.

Rural real estate is another matter, and is anything in the country, usually farms and all that, though rural economies are usually so tied to one local resource that all local real estate is heavily linked, when the timber mill closes real estate values in all sectors of the local area crash in sympathy.

Because there is no one form of real estate, and certainly no central exchange where sales are made, there is a rather low correlation between property values in each area.

Some forms of real estate, namely office blocks, expensive residential and some industrial are very tightly tied, in the short term at least, to the fortunes of the share market and the general economy, albeit with a delay.

Cheaper residential is not tied to expensive residential very closely, retail does its own thing according to consumer spending habits, which may be tied in some ways to the stock market. Real estate values of all types have only a moderate correlation between each state or major city, and within each city suburbs rise and fall at their own pace only loosely in parallel with the overall trend.

What does this mean to you? Well it means for starters that unless you know that an expert is specifically referring to one type of real estate then the mention of a rising or falling real estate market indicates that they do not know what they are talking about. When newspapers report a real estate crash, what real estate? The CBD may be full of office towers with 60 foot tall banners reading "For Lease", but what does that mean for a blue singlet suburb at the end of the railway track situated between a brickworks, a bowling alley and a pub well known for its bikie tatoo reviews? Not much!

It also means that local knowledge is very important, if you take a team of trained valuers from one major city and drop them in another, or even drop them in another part of the same city, providing them with all the info they request, valuations may still vary wildly. This was actually done a number or years ago in London, a group of valuers were moved to a different part of London to do some valuations and their results varied by 50% on either direction of what the locals were valuing the properties at.

Real estate is not a single market but a series of micro-markets, all of which move more or less independently. Occasionally large scale booms have a broad impact on a wide variety of real estate categories and localities, but in general there is little correlation between different areas. Miniature market cycles may move in rolling booms randomly throughout the whole sector, and it is very difficult to time individual increases.

A consequence of this distribution of price gains is that real estate provides a number of opportunities to both diversify a portfolio and choose the most appropriate investment strategy for the unique economic circumstances of the time and the place.