One of the most common statistical measures pertaining to property investment is the good ol’ median price. Median price reflects the ‘middle’ price in a sequence of prices. It is important to understand that it is not the average price – which is calculated by adding all prices together and dividing by the number of prices involved.
The median price is supposed to provide a more accurate reflection (than average prices) of property values in a particular location. However, based on 20 years ‘real world’ experience, I offer a word of warning. While the median price does tend to provide a better indication of property price movements (compared to the average price), it is only an indicative measure. In fact median prices really tell us more about the type of property being sold rather than value of property in a particular location.
There are a number of potential problems with median prices including the various ways they can be calculated, not to mention the fact that prices below and above the middle price are virtually ignored – which can be very misleading!
One of the most commonly asked questions is… why do different organisations report median values that are quite different? The answer to that question lies in the methodology used to calculate medians.
If we consider three well known research-based organisations: the Australian Bureau of Statistics, Australian Property Monitors and Residex – each one uses a very different approach in their calculations which provides different results.
So which one is most accurate? It’s a matter of personal choice – personally I’ve been using Residex for many years. There are two main reasons: (i) based on personal history, they have a proven track record and (ii) I like the way they calculate medians. While I find them to be quite reliable, ‘real life’ is the only accurate measure. In other words, the value of a specific property gets down to what someone is prepared to pay for it – the market determines the price.
Always check and double check all data personally…in my experience, the majority of mistakes are made when folks buy – usually due to lack of research. These mistakes tend to be both big AND long-term!
Take care
Garry
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