Tip of the month:
What do median prices really tell you?
There is a heavy reliance on median prices when commentators are assessing the health of the market, however what do these mean and how reliable are they?
The median house price is the midway point of all the houses/units sold at market price (or sold amount) over a set period (monthly, yearly, quarterly, etc.). ... This differs to the mean price, which equates to the average price—adding the sold prices together and then dividing this by the number of sales. Put simply, if there were three sales and the prices were $1,000,000, $200,000 and $550,000 for a particular suburb the median house price would be $550,000. The mean would be $600,000.
If the sample size is large, the median can be a reliable measure, however if the period of time is short and the number of sales is low it can often be very inaccurate measurement. For example if looking at one month’s information for a particular suburb and there have only been a small number of sales you could see a dramatic increase or decrease in median prices. This can be dependent on the number of high end sales during the past month. Generally in a declining market, the areas that often have the biggest reductions in the median prices are blue chip locations such as Toorak or Hawthorn. However these mask the true picture as generally during downturns the supply grounds to a halt as people in these areas are typically high net wealth individuals who do not need to sell. As a result you do not see many high price homes on the market. This does not stop the commentators talking down these areas as locations to avoid even though they have consistently outperformed the wider Melbourne market for a long period of time.
So understand what these metrics are saying and only rely upon them if the sample size is large. A rolling 12 month median can often give an accurate picture of the health of a particular suburb as this is over a longer period of time and generally captures a large sample size.
There are other short term indicators that you can look at to determine the health of a suburb at any given point of time, these include the number of listings, % of stock in the market, days properties are on the market and individual sales compared to their previous results.
If you need any help make sure you speak to one of our advocates, Sam on 0404 148 700, Paul on 0422 258 940 or Leigh on 0448 394 151.
|