Be cautious when looking at median house or unit price fluctuations and don’t rely on them as the only indicator of directions in market values in certain suburbs.
The change in median house or unit price as an indicator of real price growth for property is the most commonly used barometer for market conditions and many consumers rely on this information as an indicator of market worth for property with fluctuations of median price often influencing 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 there is a small volume of sales with a higher proportion of more expensive property selling during a finite 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.
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 rises.
Be cautious when looking at median house or unit price fluctuations and don’t rely on them as the only indicator of directions in market values in certain suburbs.