Why not to trust median property prices


Be careful – observing the change in median property prices may not be as useful as you think.

While median house prices are one of the most cited property market statistics as with any single measure there are some shortcomings that investors need to understand in order not to be misled about what’s really happening to house price values.


So here are 5 things you need to understand before you draw any conclusions from the regularly reported changes in median prices:

1. How is the median price calculated?

The median house price is essentially the sale price of the middle home in a list of sales where the sales are arranged in order from lowest to highest price.


So in a list of 11 sales, it would be the sale price of house number 6, which has 5 lower-priced sales below it and 5 higher-priced sales above it.

This is different to the average, which would be the total value of all the house sales, divided by the number of homes sold.

Technically speaking, the median is more accurate than the average because it is less affected by a few unusually high or low sale prices.

Median prices in properties are based on the homes that have recently been transacted and are most often divided into units and houses.

2. A change in the median price does not necessarily mean a change in your property’s value

While median prices are a useful tool for understanding the price changes of properties that have transacted in a market, a 10% increase does not necessarily mean that your property is worth 10% more.

In fact, your property could have dropped in value during this time.

What it does reflect, however, is an activity in the market.

Look at it this way…

  • If a number of multi-million dollar homes came onto the market and all sold the last month this would raise the median price – however, the value of your more moderately priced home may not have changed at all.
  • Similarly, a falling median price in an area could really just indicate that there were more sales occurring at the cheaper end of the market than there are at the expensive end.

Here’s another way of looking at it…

Let’s assume there were 5 home sales in your suburb last month as follows: $460,000, $525,000, $550,000, $570,000 and $620,000. In this instance, the median would be $550,000.

Now let’s assume that a year later 3 these same properties go back onto the market and are resold for exactly the same price as they sold a year earlier (these properties are the ones with a price of $460,000, $525,000 and $620,000).

With these 3 sales, the median price is now $525,000 – $25,000 less than the median price a year earlier.


However, as you can see, each of these houses did not lose any value when they were re-sold.

Clearly, the sample of sales here is small and not statistically significant.

The point I’m trying to make is that to really understand what’s been going on you’ll need to look deeper into the sales that occurred over the period in question.

Scrutinising the types of properties that sold the previous month compared to the new data can be helpful – you might notice that those selling last month were primarily 3-bedroom brick houses, whereas this month more prestigious homes were selling.

This may suggest that the uptick in the median price isn’t a sign that your property is increasing in value.

3. Median prices are a more valuable indicator in some areas than others

Changes in median price statistics are more meaningful in determining property price growth in some areas than others.

For instance, suburbs where the properties are largely homogenous and therefore of similar pricing are likely to see the median price as a more accurate reflection of true value changes.

And suburbs, where many properties transact on a more regular basis, will also be more statistically meaningful than in areas where homes are tightly held, sell infrequently and are significantly different from one another.

Property Sale

Similarly, some suburbs are far too large for the number to be meaningful – with good and bad locations on different sides of the main road that don’t perform similarly being lumped together.

Likewise relying on median price changes at a capital city level is too broad and can be misleading.

Medians are also misleading when a suburb has two distinct markets. This is common in bayside suburbs where houses near the beach fall in one price range and are very different to house prices further inland.

Median price changes can also be misleading in many of the new outer suburban areas where the type of property sold a number of years ago, vacant land, has now been replaced by new homes.


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