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  • Understanding median, averages and quartiles

    What data does REIWA use to calculate its median prices?

    REIWA uses transfer of title data from Landgate as the basis for calculating various statistical parameters.

    It is important to appreciate that medians are calculated using price data based on the sales contract date rather than the settlement date.

    However the sales data is not available from Landgate until after settlement has occurred which delays the timing of REIWA releasing its analysis.

    What is a median price and why do we use it?

    The median price is the middle price in a series of sales.

    If there are 15 sales recorded in a suburb and these are arranged in order from lowest to highest value, then the eighth sale is the median price. In the case where there is an even number of sales in a series, the median is the average of the middle two prices.

    Whilst the median provides a general indicator of the trend in property prices for the majority of the market in a suburb, care should be taken when applying the results to an individual property as prices may be influenced by a range of unique factors including age, house and lot size and condition.

    What is the difference between a median and average price?

    An average price is different to a median as it is calculated by adding up the value of all the sales and dividing it by the number of sales.

    Median prices are generally used in property analysis rather than average prices because median prices are unaffected by a few unusually high or low prices that may skew averages.

    Whilst the median is regarded as presenting a more accurate measure of true market activity, sample size is also important with 30 sales considered a reliable sample.

    Below this, the sample may be subject to bias and present undue volatility.

    What is a preliminary median and why is the final median different?

    When REIWA publishes its initial figures on reiwa.com and in the Property Report, it is important to understand these are preliminary medians as they are based only on a proportion of the data available, generally around 65 per cent for the most recent quarter.

    As the balance of the data is received from the Landgate Information over the subsequent months after the initial release, in many case the median whether it be for the quarter or for the year will invariably change, hence the subsequent publication of final medians when the next quarter is released.

    For example, in the March Quarter 2006, Perth's preliminary median for the quarter was $353,000 but as the balance of the records are added from the latter part of the quarter, the final median for the March Quarter increased to $365,000.

    Factors influencing an increase between preliminary and final medians include:

    • more affordable properties often have shorter settlement periods, hence the data is received earlier, and
    • in a rapidly rising market as experienced during 2005-06, prices increase monthly and therefore later records are generally of a higher value.

    What is the different between 'quarterly' medians and 'year to' medians?

    Various media present a variety of median prices. REIWA publications present both:

    • Quarterly medians which represent the median sales value for a particular quarter. Publication of this figure is generally restricted to overall markets such as Perth, Mandurah, Greater Bunbury and other regional centres, local government areas or sub-regional areas within the Perth market such as the Western Suburbs or Rockingham-Kwinana.
    • Year to or annual medians represent the median of all sales transactions that occurred over a 12 month period. Suburb data is often presented at this level, particularly in the Property Report as there are often insufficient sales or compositional variations of the property traded within each quarter that make quarterly reporting and the associated percentage changes potentially volatile.

    Why are there different ways that percentage changes are quoted?

    Percentage changes are presented in various ways in the media. REIWA presents percentage changes in the following ways:
    Quarterly change is the comparison of the median of one quarter with the previous quarter.

    Generally this is restricted to larger overall markets such as Perth and regional centres.

    This is not to say it cannot be applied to suburbs assuming there are adequate sales volumes to provide a representative sample. Industry practice usually restricts reporting of median sales price to volumes of 30 or more sales.

    Annual or Year on Year change can be expressed either as:

    • the annual change between the medians in the same quarter for two subsequent years or;
    • the annual change between medians for the year to date data compared with the previous year to date data. This is what is typically presented in the Property Report for suburbs.

    Average Annual Growth Rates for five and 10 years are only calculated using annual medians and represent the average compound growth over the respective period.

    It is therefore important to understand what data is being presented in the first instances, whether it is quarterly or annual and then the nature of the change being presented.

    Why does the annual percentage change presented in the Property Report differ if I compare this year?

    When REIWA releases suburb data in the Property Report, it is important to appreciate that this is preliminary data and the annual percentage change is therefore preliminary.

    The percentage change is calculated using final data from the previous year and therefore is not appropriate to calculate the change using the median published in the Property Report a year ago. This was also preliminary data and has invariably changed.

    The revised median for the previous year is available in our Suburb Profiles.

    What are the upper and lower quartiles?

    Other statistical parameters that may be reported in the media or in REIWA research from time to time include the upper and lower quartiles.

    These are derived in a similar way to calculating the median by placing all records for a period in value order and identifying the values that represent:

    • the top of the bottom 25 per cent of the market (the lower quartile), and
    • the bottom of the top 25 per cent of the market (the upper quartile).

    Use of quartiles and the relative movement in values of the quartiles between quarters or over the year help us to understand which part of the market is moving relative to the median.

    The lower quartile tells us that 25 per cent of the market was priced at or below the lower quartile value whilst the upper quartile indicates the top 25 per cent of the market was priced above the upper quartile.

    It follows then that the remaining part of the market between the two quartiles represents 50 per cent of the market and includes the median value.

    There are also a variety of measures used to express price movements. These include the quarterly change between quarterly medians and annual changes which may compare either one quarter with the same quarter in the previous year or a year-on-year change which compares annual medians.

    Annual medians are also used to calculate five and 10 year Average Annual Growth Rates which represent the compound growth rate over the respective period.
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