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The median price in layman’s terms
May 13, 2015
Home ownership is often called the great Australian dream and with more than two thirds of Australians owning their home it’s no surprise that we have a huge interest in all things property-related. One question many of us have in mind is, what is my home worth?
The worth of a home and its prospects for capital growth are also questions in the minds of house hunters as they search for a property to fulfill their wish list, offer value for money, potential for capital gain and all within their budget.
What is a median price?
A useful place to start is median house prices. These are calculated every three months by REIV’s research analysts. They calculate the median for every suburb in Melbourne and about 200 regional shires and townships. It is sometimes assumed a median price is the same as the average price but it’s not.
The median is the middle price of a list.
So, for example, in a list of 11 prices the sixth price would be the median. If there is an even number of prices the middle two would be averaged. Obviously the bigger the list, the more valuable the information. So when REIV’s analysts calculate median prices they note which had fewer than 50 sales in the quarter.
These figures are available free on the REIV website – there is a direct link from the home page and are a useful starting point when buying or selling. They are loaded onto a map so that clicking on an area brings up the information about it, including the quarterly change in median price.
Why use medians?
Median prices are less affected by the highs and lows of sales than average prices, also known as mean prices. Averages are more prone to be skewed by a few extremely high sales or low sales, pushing the average up or down.
But an exceptional quarter – lots of high sales, for example – can also have an impact on a median. So, for example, areas with negative median price growth in the current quarter of this year may still be an excellent long term investment.
How do I use median prices?
Medians are based on the sales data reported to REIV from real estate agents. They can be used to compare prices between suburbs or townships, and comparisons over a year or even five years can show whether prices in an area are rising, stable or even falling.
They give an indication of a suburb’s overall price bracket – for example, REIV notes which suburbs have a median of more than $1 million in a quarter. In recent years, as Melbourne property prices have risen, the number of such suburbs has also increased – and almost all of the suburbs within 10km of the Melbourne CBD now have a median of more than $1 million.
“The ripple effect”
As some suburbs have become increasingly expensive, the median price in neighboring suburbs has crept up – this is known as the “ripple effect”. Buyers who study these prices can see which suburbs are likely to be a good buy as this effect causes prices there to rise.
What else should I consider?
The median price is a house hunting tool, not a valuation tool. Factors such as a home’s quality, its location and how near it is to amenities such as schools and transport will determine its precise worth. Local factors such as employment opportunities will also have a bearing.
So although a home may be in a million-dollar suburb, if it is on a main road, near a railway line, a long walk to transport or shops, or simply a dump that does not mean it will be worth $1 million.
Though levels of home ownership vary widely across the nation, Victoria recorded the second highest rate of home ownership (after Tasmania) in the last census. And the two local government areas with Australia’s highest rates were also in Victoria: Golden Plains and Nillumbik.
The security and well-being provided by home ownership remains a goal for most Australians and the quarterly median price data release is a chance to see how an area has fared in comparison with others. Even for those not planning a move – it’s fun to window shop.