What is the median price and why is it so confusing?
You may have noticed that median price is often used to compare property values. When people say house prices in an area have increased or decreased, they are usually referring to changes in the median value. But what is the median price and how is it calculated?
Acreage Property Sales in Mudgeeraba
Median is simply the middle figure. In the table above, the median price is $870,000. People often confuse the median with the average price, which is calculated by dividing the total value by the number of items (i.e. $11,012,000 / 9 = $1,223,555).
As you can see, there is a big difference between average and median in this example. This is because the outlier figure of $3,425,000 has skewed the average. Similarly, a really low sale, of say $100,000 would also distort the results.
This is why the median price is a more accurate indication of property value than the average price.
That being said, it is important to remember that the accuracy of median price is determined by the amount of data available. When there are only a limited number of sales in an area, the median value is a less useful indicator of property value. For example, a few sales of over $1 million in a suburb like Bilinga (near Coolangatta) might lead buyers to believe that the median price has increased from $800,000 to $1 million. However, the reported rise in median price doesn’t mean that all properties in Bilinga have increased in value! It’s just that there were a few high sales over a particular time period.
The median price can also be misleading if there is a change due to rezoning or redevelopment. For example, in Mango Hill (on the Sunshine Coast) a lot of vacant land was sold after new sub-divisions were released. As a result, the median price in Mango Hill decreased from around $500,000 to $300,000, but it wasn’t due to house prices going down; the median price decreased due to an abundance of vacant land sales.
Ultimately, if you want to know the true value of property in particular area, don’t just rely on a change in median price to draw your conclusions. Instead, take some time to investigate why these changes have occurred, so that you can better understand the local market and establish the actual value of property in the region.
Local real estate agents in the area will be able to explain what current trends are taking place. This up-to-date information is invaluable when deciding whether to buy or sell, as the published data is often out of date by six or twelve months.
We are here to help if you have any questions about the property market in your area.