How often have you been to an open home, and the agent throws the term “Median Price” into the conversation? Perhaps you are at a BBQ, and someone casually advises the “Average Price” to buy in a particular neighbourhood. Did you know that they don’t have the same meaning, they can’t be exchanged for one another.
Rather than have the bewildered look of a deer in the headlights when someone interchanges Median and Average, allow me to take you on a brief journey back to primary school maths, and in your next property conversation, you will be the wise Owl and not the stunned deer.
Average which is the arithmetic mean, is calculated by adding a group of numbers and then dividing by the count of those numbers. For example, the average of 2, 3, 3, 5, 7, and 10 is 30 divided by 6, which is 5.
Median which is the middle number of a group of numbers; that is, half the numbers have values that are greater than the median, and half the numbers have values that are less than the median. For example, the median of 2, 3, 3, 5, 7, and 10 is 4.
So, back to buying property, how do we apply our refound primary school math knowledge?
Quite simply, Median price is the midway figure in the range of numbers from lowest to highest, with equal amounts above and below the midway point. The Average adds up prices in a list and divides by the total number of properties.
For example, if 51 houses sold in a suburb over a given period, the Median house price is the house price in the middle with 25 house prices above it, and 25 house prices below it. Whereas, the Average house price adds together the total value of the 51 houses, and is divided by 51.
Is there an advantage to using one term over the other when referencing or researching property? Yes there is, and it is recommended to go with Median Price. The advantage of using Median over Average as a measure, is that Median IS NOT unfavourably influenced by extreme numbers. In contrast, Average IS unfavourably influenced by extreme numbers.
Let’s put this in context, and look at some actual sales results from Hawthorne. In August 2014, there was 12 house sales recorded. These are actual sale prices, I didn’t make these up. In fact I am actually one of these numbers, and a famous Australian female mining magnate is linked to two other numbers in this list.
Median Price is the number halfway between house sale no.5 ($1,150,000) and no. 6 ($1,160,000), therefore Median price is $1,155,000.
Average Price is the total sum ($28,641,000) divided by the total count of the numbers (12), therefore Average price is $2,386,750.
You can see how the Median Price is not influenced by the $14,000,000 sale, thereby providing a truer representation of the market in terms of prices and market growth. Whereas, the same transaction of $14,000,000, which is not typically representative of sales in the area, pulls the average higher and results in an over-inflated price growth pattern for the area.
Having an understanding of the lingo when buying or selling property can add an extra dimension to your skill level for you next property transaction. When researching the market position for your suburb, I would be recommend you look at a greater period of time, (say quarter, half year or 12months) rather than one month in isolation, as this may not be a true reflection of the market if there were very low or very high value property sales that could skew the results.
So, now you know the difference between Median and Average in terms of property prices … you are now smarter than the Average Bear, right? Keep in mind though, that although Median Property price can give you a good indication of market trends and conditions for a specific area, it is only one factor that should be taken into consideration.
Some properties can be well above or below the median for a number of reasons, including block size, dwelling condition and size, views, location and features. In the prices listed above, house no.1 sold for $550,000; it is only 387m2 and located between Riding and Hawthorne Roads. Property no.10 sold for $1,650,000 is 930m2 on a street parallel to the river and offers a large pool.
Whether you are buying or selling, it is important that you ask the Real Estate Agent for a Comparable Market Analysis (CMA) relative to the property. A great agent with his or her finger on the pulse will know the area well, and will have knowledge of relevant property sales, current available properties and their respective differences.
I welcome you to read my quarterly market reports for the Bulimba, Hawthorne, Balmoral and Morningside areas, in this you will find house and unit specific results on the median price for the areas, quarter-on-quarter growth, and comparison to Greater Brisbane area.
(Spring Edition available in early September).