Sunday, January 6, 2013

Median Price Reports Not Always What They Seem

Often, newspapers report on the growth or decline in property values, or identify certain areas as hotspots, or have articles such as "What is your home worth?"  This articles are often based on changes in median price over a period of time.  However, care must be taken when looking a median price reports.  First, the data set may be small.  For example, it is not uncommon for the median price for a suburb to be calculated on less than 20 sales.  Second, there may be a change in the mix of what is sold.   For example, if in one year, many 1 bedroom apartments are sold, and in the next year, many 2 bedroom apartments are sold, then the median price will show growth, when in fact, the values of 2 bedroom apartments may have declined.  Another example is if a large new apartment building completes.  This happened a few years ago in West End -- the newspapers reported dramatic price growth in West End; the change in median price was in fact due to the completion of more than 150 apartments in 2 developments, not due to property values increasing.

It is easy to identify "hotspots" on this basis -- just look to where a number of new apartments buildings or subdivisions are nearing completion.  But this is really misleading.  

The Courier Mail, that often publishes such reports, identifies the risk of looking a median prices:

"A change in median price, more often than not, reflects what has been sold during the two time periods rather than actual price growth.  The only real way to test price growth is to look at resales - the same dwelling resold over time."  Courier Mail Real Estate Section, page 2, 5 January 2013, by Matusik.

Realty Times makes the same point in this article.

As Matusik states "You can't always believe what you read."  [I guess he is referring to the Courier Mail here?]

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