Median house prices are often reported with great excitement when there is a rise from one period to the next. Personally, I am sceptical about the use of median house prices as a solitary measure in which to gauge property price growth. I accept that the data does provide some assistance, however, believe that to fully appreciate the statistics one must analyse the figures and understand the peculiarities of each sector.

The issues I have are that the data can be influenced by:

1. Low sales volumes;
2. The sector in which property is sold at any given point in time; and
3. The redevelopment or urban renewal of a location.

Low Sales Volume

If you study medium house price tables you will notice that on some occasions they are qualified with only suburbs recording sufficient sales numbers included. I recently studied a median house price table which included data for suburbs with 11 sales but excluded suburbs with 10 sales as they were considered to have insufficient sales volume.

I accept that parameters need to be set when providing data, however, 11 sales in a small suburb such as Newtown (Ipswich) might provide a good base to gauge market movement. Conversely, 11 sales in a large suburb such as Redbank Plains might be insufficient sales volume.

Property Sector Sales

Many suburbs consist of a diverse range in the quality of homes. In buoyant markets you find sales occurring across all sectors, whereas, in tightly held markets you often find low sales volume in the executive residence market. The sector in which sales volumes are high or low can dramatically impact on the median sale price.

Urban renewal/redevelopment

Urban renewal, redevelopment sites and the development of previously undeveloped sites can also influence median house prices. Take for example a slightly older suburb with little development over the last 20 or 30 years. The development of land and construction of new housing stock will impact on median house prices. Suddenly there can be a shift in not only sales volume but also often in the quality of stock sold. Such a shift can influence the median house price for the suburb dramatically.

Overview

I accept that data is required to try and analyse the market and that median house prices can provide some assistance in gauging shifts in the market. However, I strongly believe that one must be fully aware of market activity in any given suburb to fully understand what the figures truly report.

In my opinion, perhaps the best indicator of market movement is the sale and resale of a property where only general maintenance and upkeep has occurred between the two transaction dates. Again though, you need to have volume for the evidence to be accurate.

I trust this simple explanation assists you in understanding the complexities of median house prices.

Savas Varitimos FAPI

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