These comments are the writer’s own and do not necessarily reflect the current opinions and policies of the Real Estate Institute of Western Australia.
According to REIWA, Perth’s median house price crept up to $520,000 for the June quarter with an expectation it will moderately rise again by the end of this year. But does this necessarily mean that property prices are rising in real terms? 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 a commonly used barometer for market conditions and many consumers rely on this information as a gauge for property values when buying and selling. Fluctuations of median price will often influence buying decisions but such movements 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 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 drop in median house price of 1.8 per cent for year-to-date June 2017 but returned an impressive 25 per cent gain over the last twelve months. This doesn’t necessarily mean a home in North Freo worth $1million a year ago is suddenly now worth $1.25 million. It’s the composition of the sales in that market that influences the median price.
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 – such as is the current trend – the median naturally rises, hence the expectation of higher median prices by 2019.
by Hayden Groves
REIA Deputy President