Homebuyer essentials: What’s the median price?
Real estate in Australia is a labyrinth of smoke and mirrors, solid in structure but never in price, with performance varying from city to city, suburb to suburb. In fact, a report from the Australian Bureau of Statistics shows that combined capital city property prices rose 9.8 per cent over the year to June 2015.
However, this figure should be taken with a grain of salt, as Sydney was the only city that posted a value growth more than the national average, with a whopping 18.9 per cent. Second place went to Melbourne, posting an increase that was considerably less at just 7.8 per cent, while the rest of the capital cities were unable to exceed 3 per cent.
What does this mean for you as an investor or homebuyer?
It simply means you will have to do your due diligence and put some added effort into your research! The Australian Securities and Investments Commission affirms that the median price is a great tool to use when browsing through homes for sale.
In light of this, here’s a basic rundown of the median price, why it’s used and how you should use it.
The median price
Put simply, the median price is the halfway point of a collection of dwellings sold over a set period, which can be anything from monthly, to yearly to as far as records go. For instance, if for the month there were 101 homes sold, you’d ignore every sale except for the 50th, which is your median price as it is in the middle.
The mean is quite different, as it shows the average sale price. This means it can be put askew by unusually large or small pieces of data, such as the combined capital city prices.
Meanwhile, the median can paint you a pretty clear picture of the value of property for sale in certain areas. You can get an idea of what areas could be profitable in the future by looking at the history, as while one city may have a much higher median price, another area may be showing significantly more growth.
Figures from CoreLogic RP Data provide a good example of this. While Sydney’s median dwelling price skyrocketed over the year to August 2015, Melbourne actually grew faster over the quarter, which could indicate that the tides are turning.
A range of uses
One of the main reasons the median price is widely used as the foremost method of determining the strength of real estate in Australia and worldwide, is that it is capable of ascertaining so much.
Moody’s Australian Housing Affordability Measure uses median dwelling prices and the average income from an area to establish how much it costs to live there, and what proportion of your cash flow would go towards your property. In April 2015 you needed around 35 per cent of your income to make mortgage repayments on a house in Sydney, meanwhile in Perth it was just 21.9 per cent.
CoreLogic uses median dwelling prices to keep a record of suburbs that have entered the ‘million dollar club’. In the 12 months to July 2015, 437 suburbs managed to gain membership with median prices exceeding $1 million. The data also showed that more than 97 per cent of the new entrants were in capital cities, while NSW took the lion’s share.
The functions of the median price are endless, from deep analysis for investors to simply acting as a filter on your search to help find suburbs that are in your price range. Despite this, not all situations are the same, therefore it is a good idea to talk to your local real estate agent to find out comparable sales in your area.