By Hayden Groves – REIWA Deputy President, REIA Deputy President:

REIWA recently reported a $15,000 fall in the median house price for Perth now at $535,000 a drop of 2.7 per cent from the June quarter. But does this necessarily mean that property prices are falling? The answer might be “yes” but it can also be “not necessarily”.

The change in median house or apartment 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 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 huge drop in median house price of 25 per cent for the September quarter but this does not mean that everyone’s property in that suburb lost a quarter of its value in three months. The result is due to a small sales sample (only 4 sales for the quarter) and a greater number of buyers in the lower priced end of that market. Compare this with, for example, Beaconsfield whose median house price rose 5.3 per cent for the quarter where demand for homes is not significantly different to that of North Fremantle’s.

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 property price fluctuations and don’t rely on them as the only indicator of market values.

Want more property info?
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