What does ‘Median House Price’ mean?

According to REIWA’s latest estimates, Perth’s median house price will settle at $478,000 for the March 2020 quarter and will remain relatively stable for the next few months.

With individual suburbs having their own median house price, which over the coming months will rise or fall, some might be asking themselves is this important and how does this work?

First things first, it’s not the same as ‘Average’.

I like to explain the Median House Price as being the level in the market at which the greatest amount of activity is (generally) taking place.  But here’s what the experts say;

What is the median?

Understanding the median is the first step. The median is commonly defined as the numeric value separating the higher half of a sample from the lower half.

The median of a finite list of numbers can be found by arranging all the observations from lowest value to highest value and picking the middle one. In simple terms, the median house price is simply the middle price of a sample of sales for a given period.

It follows then that upward movement in median price can result from circumstances where a small volume of sales, with a higher proportion of more expensive properties, sell during a defined period.

Understanding when the median changes

Changes in median house, land or unit prices are commonly used as an indicator of price growth and a barometer for market conditions. Many consumers rely on this information as a gauge for property values when buying and selling property.

Indeed, a suburb could show a significant rise in median price yet be in the middle of a market downturn with low sales volumes and falling values.

The median then, is a useful indicator of market sentiment for individual suburbs more broadly and is particularly handy when viewed across a period of at least a year when the sale sample is larger.

How accurate are median prices?

Although fluctuations in medians often influence buying decisions, the movement in median price can be out of step with real-time market conditions. While medians are useful for gauging market trends, they are not a definitive indicator of the entire market.

When first home buyers are active in the market, the median price steadies or falls as a result of the lower purchase prices. On the other hand, when trade-up buyers increase their presence in the market, the median naturally rises.

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