Use Common Sense – Not A Median

Forget looking at median house prices. The reality is that most people could not tell you the difference between a median and an average. The vast majority of people I speak to believe that they are the same thing.

If you’ve ever had a good look at how medians tend move up and down like a yo-yo in particular in the inner city markets, you will understand what I am talking about. An article today had this cracker as a headline “Sydney’s fastest growing suburbs in 2015”

                                                     YoY Growth          Median*

 1  Dundas  52.8%  $1,092,500
 2  Cronulla  44.2%  $1,730,000
 3  North Rocks  43.1%      $1,245,000
 4  Hunters Hill  40.4%      $2,562,500
 5  Camden      40.2%      $673,000
 6  Kirrawee  39.7%  $1,060,000
 7  Gordon  39.6%  $2,480,000
 8  Casula      38.9%  $710,000
 9  Woollahra  38.6%      $2,635,500
 10  Gymea      38.4%  $1,070,000

 

*Based on sales in the six months to September. Source: Domain Group senior economist Dr Andrew Wilson. 

Although average is a commonly-used and well understood statistic, median is also a common descriptor used to express a “middle” value in a set of data.  This “middle” value is also known as the central tendency. Median is determined by ranking the data from largest to smallest, and then identifying the middle so that there are an equal number of data values larger and smaller than it is.  While the average and median can be the same or nearly the same, they are different if more of the data values are clustered toward one end of their range and/or if there are a few extreme values. In statistical terminology, this is called skewness. In this case, the average can be significantly influenced by the few values, making it not very representative of the majority of the values in the data set.  Under these circumstances, median gives a better representation of central tendency than average.

However, here is an example of how easily a median can move from month to month;

 1  123 Example Street           Sale price $1,000,000 
 2  456 Example Street   Sale price $1,250,000
 3  789 Example Street   Sale price $1,500,000 
 4  321 Example Street   Sale price $1,750,000
 5  654 Example Street   Sale price $1,150,000 
 6  987 Example Street   Sale price $1,550,000 
 7  111 Example Street   Sale price $1,650,000

 

The average sale price would be $1,407,000 however the median would be $1,500,000. If the cheapest property were to be pulled from a marketing campaign (in this case property number 1) and all other 6 properties were to sell, the median would be $1,525,000. If properties 1 and 2 did not sell, then the median would be $1,550,000.

If we go from the other end of the scale and the two most expensive properties don’t sell, then the median becomes $1,250,000. You can see how these medians can easily jump around. It is not uncommon for inner city suburbs to see median prices jump around like a square rubber ball given the range of different types of properties they offer. The inner city offers studio apartments at the lower end of the scale to terrace homes and penthouses priced well into the millions. 
The issues we’ve seen with the median prices in the outer suburbs in particular the past couple of years have been the properties with property development potential have been of interest and developers have been amalgamating them over the past 24 months and clearly where there is potential upside, these properties will not be selling within the normal market price, and there goes your median!

This article below is a classic example of what has been going on in the north western corridors of Sydney.

http://www.domain.com.au/news/castle-hill-residents-join-forces-against-developers-over-valuable-land-set-for-highrise-20150220-...