MEDIAN PRICES

Disclaimer: These comments are the writer’s own and do not necessarily reflect the current opinions and policies of the Real Estate Institute of Western Australia.

According to REIWA, Perth’s median house price edged up to $525,000 by year’s end with an expectation it will continue to moderately rise throughout 2018. But does this necessarily mean that property prices are rising in real terms? The answer might be “yes” but it can also be “not necessarily”.

The change in median house, land or apartment price as an indicator of real price growth for property is a commonly used barometer for market conditions and many consumers rely on this information as a gauge for property values when buying and selling. Fluctuations of median price often influence buying decisions.

However, the movement in median price can be out of step with real-time market conditions. Wikipedia says that the median is “…the numeric value separating the higher half of a sample… from the lower half. The median of a finite list of numbers can be found by arranging all the observations from lowest value to highest value and picking the middle one.” In simple terms then, the median house price is simply the middle price of a sample of sales for a given period.

It follows that any upward movement in the median price can often result from circumstances where a small volume of sales with a higher proportion of more expensive property sells during a defined period. Indeed, a suburb could show a significant rise in median price yet be in the middle of a market downturn with low sales volumes and falling real values.

The median then, is a useful indicator of market sentiment for individual suburbs more broadly and is particularly handy when viewed across a period of at least a year when the sales sample is larger.

North Fremantle, for example, showed a big drop in median house price of about 25 per cent for year-to-date March 2017 but this does not mean that everyone’s property in that suburb lost a quarter of its value during that time. That result was due to a small number of sales with most being at the lower end of the value scale. By year’s end, North Fremantle showed a rise of about 25 per cent. It’s therefore the composition of the market sales that influences median prices.

When first home buyers make up a large portion of the buyers, the median price steadies or falls and once “trade-up” buyers proportionally increase their purchasing activity, the median naturally rises, hence the expectation of higher median prices by 2019

by Hayden Groves
REIWA President
REIA Deputy President