Beware of median prices for your suburb

Home-owners all over the country have seen the value of their property soar in recent years. But just how big a gold mine do you think you're sitting on?

Be careful about relying on house price survey figures for your suburb. The figures are usually based on movements in median house prices. The median is simply the middle price of sales that occurred during the period surveyed, so it's easy to get the impression that prices are soaring across the board.

BIS Shrapnel says that the median price can be artificially inflated by several factors. A lot of new building activity or renovations in an area may make an impact, for example. Conversely, if there have been a lot of sales at the lower end of the market, such as due to the First Home Buyer's grant, the median price may be compressed. BIS suggests that people look at individual sales of similar properties over a period of time.

Residex concurs and says that people comparing median house price data should look first at the number of sales that have gone into producing the figures. Residex also uses the strategy of examining pairs of sales on the same property and calculating the rate of growth between the two sales. The rate of growth isn't then influenced by factors such as new building activity or renovations. The resulting growth figure may be quite a different one from the median house price growth for the same area, sometimes by as much as 10 per cent.

Home buyers should use median house prices as a starting point only when trying to gauge an area's growth, particularly if they're investing for capital growth. Use the InfoChoice/Residex Where Can I Buy? calculator to check out affordable homes and postcodes.

Published: 6 March 2005

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