Median house prices – magical or misleading? (Q&A)
Whether you’re just starting out in property investment or you’re a seasoned pro, you’d be familiar with the term, median house prices, and have probably spent countless hours scouring newspaper articles and real estate data trying to digest and distil them.
But what do they really tell you and what else do you need to know to make sense of them?
Well, we thought we’d break it down for you. We asked Property Wizards Buyer’s Agency director Trevor Dunkley for his insights on median house prices.
“Median house prices can be a great asset to use when selecting a suburb to search in or property to buy, but they can also be misleading.”
Why is that?
“Like any statistics, they shouldn’t be looked at in isolation. Median prices are a good long-term guide, but just because the median goes up in a suburb does not mean that it is achieving market growth. Likewise, a suburb that has seen its median price go down is not necessarily a bad area to invest in, as the suburb could actually be booming.”
How does that work?
“There may still be underlying growth in an area, but the median could slow if, for example, more houses sold in the area over that time were at the lower end of the market. Or, say you have a suburb in which the median price of homes with potential to subdivide grew, but at the same time, the median price of homes on smaller blocks, or newer homes on already developed blocks fell. So it pays to look more closely.”
What about different types of homes in one suburb?
“Exactly. That’s another issue to consider. Median prices don’t account for different categories of homes. Brand new, four-bedroom, two-bathroom homes on a large block are placed in the same category as older, two-bedroom homes on a cottage block – so that can skew the picture the numbers paint.”
What does a sudden change in median price mean?
“Short term fluctuations in median prices should be treated with caution because they can be unreliable. For example, swift changes in median prices can occur from activities such as home renovations or a period of few sales. If there has been too few sales and the sample is too small, median prices can give a false impression. Likewise, the cost of home renovations by owners isn’t accounted for in median price sales, so it’s important to really understand what it is you are looking at.”
So it pays to take a long-term view?
“Yes, it’s best to look at median prices over the long term to establish the real growth of a suburb, free of artificial fluctuations. If a suburb has experienced a short-term jump in median price during a boom or because of any of the examples above, the growth is unlikely to be sustained, unless there are other reasons for continued higher demand.”
So when can median prices be magical?
“Well, on the other hand, if a suburb has consistently achieved growth for say, 15 to 20 years, and the reasons behind remain constant, you can predict growth is likely to continue.”
Final advice for reading between the data?
“The key is to take your research a step further and look at other factors in tandem with median prices. Looked at in isolation, you could not only overlook prime investments opportunities, but end up with a bad egg.”
If you’ve got any other burning questions about median house prices or how to snag a quality property investment, call us on 08·9381·7450.
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