What does median house price mean?
The median house price is the sale price of the middle home in a list of properties ranked from highest sale price to lowest over a set period of time.
What is a median house price?
The median house price is the sale price of the middle home in a list of properties ranked from highest sale price to lowest over a set period of time. That means if 71 houses were sold, the sale price of the 36th house would be the median house price.
Put another way, if five houses sold in the same neighbourhood over a month, and the sales prices from highest to lowest were $950,000, $742,000, $709,000, $662,000 and $630,000; the median sale price would be $709,000.
What variables are used?
There are no set rules about what variables are used when determining the median house price. However common variables used are the suburb or area and the time period (such as monthly, quarterly or annually). When comparing median house prices it’s important to make sure the same variables are being used each time.
Why would median price be used instead of the average house price?
Working out the average (or mean) price involves adding up all the sale prices and dividing the figure by the number of properties sold.
Sometimes the average and median prices can be similar if the sale prices are relatively evenly spaced. The reason median prices are often used instead of the average is because a few unusually high or lower prices can skew the average price and therefore won’t be an accurate indication of the current state of the property market.
Median prices can be a better indicator in some areas than others
Knowing the median house price is a handy tool to use, however it tends to be a better indicator in some areas than others.
Suburbs that have similar properties (such as same size, age and materials for example) tend to have similar sales prices; therefore the median house price is likely to be a more accurate indicator. Some suburbs, however, are either too big or have such varied houses for the median price to be a worthwhile indicator. Likewise, suburbs with frequent sales are likely to be better represented by the median sale price as opposed to suburbs where properties rarely change hands.
Other things to keep in mind
The median house price should just be one tool you use to get a feel for how the market is doing. However it’s important to also look at recent comparable sales for a clear understanding of the market.