As a property investor or home buyer you have no doubt heard the term ‘Median house price’. In this article we’ll take a bit of closer look at what the term ‘median house price’ refers to, how it is used and what potential issues there are with using median house price as a guide to expected price in an area.
First up, let’s define the term. The median is the midpoint of a sequence of numbers where there is an equal probability of a number being higher or lower than the median. So, in a given set of say, 11 ordered numbers, the 6th number is the median.
In real estate the median is used to give an idea of the likely price of real estate in an area. When compared over time it can give an idea of how an area has performed over time. Commonly used measures of capital growth compare median price over a specific time period, for example, 3 months, 1 year, 5 years, 10 years.
The average or mean of a set of numbers, where all values are added together and then divided by the count of values in the sequence, isn’t used as it’s seen to be not as accurate a reflection and more sensitive to skewing of results based on individual outliers.
A median price, however, can still be unrepresentative of the ‘typical’ house in an area and can change dramatically from one month to another, so it must still be used with caution. Median can also be calculated differently based on a data supplier.
In practice, I find the median a reasonable ‘high level’ guide to an area but not necessarily representative of the level of property that may be acceptable to an investor in an area. I often find that medians underplay the value of a suburb and investors can get caught out spending their time looking in suburbs where their budget meets the published median but the houses at that level don’t meet their expectations. They also don’t really represent the pricing pocket variations you can see across a suburb.
Like all statistics in property, i think median price are useful – but take them with a grain of salt!