what is the median unit price anyway?

what is the median unit price anyway?

It is perplexing for some people selling an apartment when their value changes more or less than the median unit price. It begs the question, “What is the median unit price anyway?” Let’s come back to that … first let’s discuss a couple of brief points to set the scene.

In the broader investment world, there are several different asset classes including shares, fixed interest (bonds), cash, property, and commodities. With most asset classes, the specific asset is traded purely on price as the asset is numerous and identical. What I mean by this is one BHP share is identical to the next one. It’s not like a fish market. You don’t need to compare two different BHP shares and pick which one you like best.

The same is true for a specific bond, or a $100 note, and therefore they can all be traded in tranches at a price. The sale of one share automatically values all other shares of the same category. Plus the market for such assets are relatively efficient and transparent, with detailed public disclosure, so we can see each day if the market for that asset has gone up or down.

For property however, no two assets are the same. While some are similar, the sale of one apartment does not automatically value others at exactly the same price and therefore property cannot have a price based traded market or market index. Listed Property Trusts (LPT’s) are as close as it gets, but this is not direct ownership of real estate. [1] Putting LPT’s to one side, it is therefore impossible to create a market pricing index for direct property. The median price is the property market’s attempt to create a market index, but it has several anomalies, which to the casual observer can make it confusing.

The median price is the middle sale price in a series of sale prices organised from lowest to highest. It is not the average price. In a world of short and fast information grabs, it works well for the property market. However, the median price has now taken on the persona of the absolute or pure market price indicator, so we need to be careful when using it to judge the direction of the property market. In the absence of anything better the median price is helpful, and over time it provides a valuable trend, but there are several wrinkles in its composition;

  1. The physical nature of some property changes over time eg. There were no Level 38 penthouse apartments in 1995 but now many high-rise apartments form part of the median unit price so the median price has gone up, in part because the actual assets making up that price index have changed.
  2. The median price in one quarter is calculated only from property sold over that period, which is not representative of the entire market.
  3. Weekly or even monthly median prices can be volatile, again due to the small data set.
  4. The median sale price from one period to the next are comprised of completely different properties.
  5. As the median is the middle price if there are a large number of low or high priced sales in an otherwise small data set it may skew the median price temporarily

The property market is opaque at best and pricing is not an exact science. Qualified valuers often disagree on a property’s value, and auction prices often surprise everyone, which demonstrates the subjective nature of property pricing. All this uncertainty demonstrates the importance of good advice, spending time to understand your specific asset and market well and why not to use changes to the median price as a proxy for valuing a change in value of your property.

[1] Shares in LPTs trade daily on the stock exchange. The property trust owns properties and may also own other assets like the management company of those properties so the investment of LPTs is often called indirect property and its movement in value is often closer correlated to the ASX than direct property values.
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