Insight into statistics can work in your favour

WHAT is the difference between a median and an average price and why on earth do you need to care? This is a question I’m often asked. Isn’t it all lies and damned statistics, anyway? Well, no.

The median house price is defined as the middle figure, so if an area has sold a certain number of homes, it is the middle price result that has been recorded. Medians are not to be confused with the average – this is the total value of the properties sold, divided by the number of sales.

Despite using different formulas there can be little disparity.

But as a rule, the Australian property market loves medians.

A median price is always less susceptible to skewing than an average, according to my good friends at RP Data.

Imagine an area that typically sells 13 homes a month in the $500,000 range. The cheapest might sell for $489,000 and then there is a cluster of homes across the $500,000 range, while the last two sell for say $625,000 and $650,000.

The median price is based on the price of the ‘‘middle’’ property. So the price achieved by property No.7 – let’s say it is $540,000 – is regarded as the median price because this is a statistically accurate reflection of the price of stock in this market.

If a new housing estate in the area sells with another 10 homes at the top end of the market in the same month for about $750,000 each, then this will change the median.

Now the median (middle) price is the price achieved for property No.12 – and this price was $625,000.

Suddenly, in the space of a month, the median has jumped from $540,000 to $625,000. But does that mean that all property in that suburb has now jumped equally in value? Sadly not.

Taken over a year or longer, median prices can be a fairly accurate overview of typical activity within a suburb.

If you are buying or selling, it is very important to take note of the median prices in your area. They can guide you on the marketability of your home if you are selling, and give you insights into competition from other buyers if you are buying.

As an investor, a median tells you how easy it will be to sell in the future. How?

Well, in most instances if you sell a property in an area where the price is set around or below the median house price, you are likely to find demand for your home is strong.

As such, you are more likely to sell quicker and arguably the buyer will gain a property where capital growth could be stronger.

Conversely, some will tell you to buy above the median.

Here there is less supply, which means that you should receive a better return. This is a higher-risk strategy. For buyers, the hint here is that if you are looking to buy a home that is priced under the suburb median, expect more competition.

If you are priced above the median, realise that you might find it harder to lure a buyer.

Investors looking for high yields and low risk should be seeking properties below the median.

Median price information on every suburb is easily found online.

Check out myrpdata.com, realestate.com.au or the Commonwealth Bank property app.