Median Prices

Disclaimer: This information is intended to be of a general nature. Please do not rely on any of the content  as being a professional tax or legal opinion and seek your own independent advice.

According to REIWA, Perth’s median house price has fallen for the past two quarters and there is broad expectation that the September quarter will follow suit. 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, land 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. Fluctuations of median price often influence buying decisions.

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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.

Samson, for example, showed a huge drop in median house price of 18.8 per cent for the June quarter but this does not mean that everyone’s property in that suburb lost almost a fifth of its value in three months. The result is due to a small sales and a greater number of buyers in the lower priced end of that market. Compare this with, for example, South Fremantle whose median house price rose 22.4 per cent for the quarter where demand for homes is strong but a home worth $1,000,000 in March is not suddenly worth $1,224,000 by July.

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.

By Hayden Groves
REIWA President
REIA Deputy President

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