{"id":7884,"date":"2016-05-08T01:00:48","date_gmt":"2016-05-07T15:00:48","guid":{"rendered":"http:\/\/realestatetalk.com.au\/?p=7884"},"modified":"2016-05-08T01:00:48","modified_gmt":"2016-05-07T15:00:48","slug":"medians-are-misleading","status":"publish","type":"post","link":"https:\/\/channels.realty.com.au\/realtytalk\/medians-are-misleading\/","title":{"rendered":"Medians are misleading"},"content":{"rendered":"

 
\nWe sort out the confusion that surrounds media reports that confuse median price movements with actual market fluctuations.
\nTranscript:<\/strong>
\nKevin:<\/b>\u00a0 One of the frustrations I\u2019ve had from time to time is how the media constantly plays on medians. If you see a movement in the median, either up or down, they\u2019ll maintain that\u2019s an indication that the market is moving either up or down when it has absolutely nothing to do with it.
\nLet\u2019s try and clarify that a little bit more for you. I can do that by introducing my next guest, Richard Rossman from Secret Agent and a really interesting article that they\u2019ve put together, which is why you can\u2019t trust averages or even, in this case, medians. I want to talk about the difference between all of those and what that really means.
\nRichard, welcome to the show, and thanks for your time.
\nRichard:<\/b>\u00a0 Thank you for having me.
\nKevin:<\/b>\u00a0 This is long overdue, trying to clarify what medians are. Firstly, in your own words, explain to me why we really can\u2019t rely on medians as an indication about what\u2019s happening to the market.
\nRichard:<\/b>\u00a0 Yes, sure thing. Let\u2019s just discuss what an average or a median really is. It\u2019s a metric that tells you if you have all data points, or in this case, all housing sales in your sample and divide that by the total number to get the average or you find the middle number. If you think about it, it\u2019s basically the total money invested in the housing market per house.
\nKevin:<\/b>\u00a0 The way that I\u2019ve described it \u2013 tell me if I\u2019m right or wrong here because you\u2019re much more skilled at this than me \u2013 the median is really an indication of where the predominance of people are buying. In other words, if more people are starting to buy more expensive properties, then the median is going to move up. It\u2019s not an indication that the market is moving; it\u2019s an indication that buyers\u2019 habits are moving up. Is that a fair way to talk about it?
\nRichard:<\/b>\u00a0 Yes, basically. The median, if you think about it, is just the middle number of your data set, so it\u2019s between the minimum and the maximum. Especially looking at the whole aggregate, if you have smaller houses and bigger houses, if they\u2019re moving in different directions, the median won\u2019t pick up on that sort of thing; it just picks up on the very general trend of are people spending more money on houses; it doesn\u2019t tell you about the stock or supply of the actual houses.
\nKevin:<\/b>\u00a0 Let\u2019s take an example because I know in your newsletter, you\u2019ve done that. Let\u2019s have a look at Fitzroy in Melbourne as probably a classic example. Run me through the figures there and that\u2019ll demonstrate the message, I think.
\nRichard:<\/b>\u00a0 Absolutely. We looked at Fitzroy housing sales from 2011 until the end of 2015. What we found was that the reported average would be about 8.7%. Those are the big figures that you often see on national TV, on RealEstate.com.au, or other sources like that. But if you compare it to just using houses that were bought and sold multiple times in that time period without any structural changes to the houses, then you\u2019re looking at a growth of about 5.75%, which is a difference of almost 3% in over-statement from the average. One big factor is a building developer coming in, buying a big house or a big block of land and then subdividing it, which adds a lot of value to the market. The average doesn\u2019t segregate that.
\nKevin:<\/b>\u00a0 Then explain to me why we are so focused on medians. What do they tell us?
\nRichard:<\/b>\u00a0 I think it\u2019s the simplest and quickest way to get an overview. Often, people don\u2019t look any further because it tells you a general overview of the market right now. It\u2019s is there more demand for houses and how is the housing industry going? Are people spending more money in it or less money in it? But it doesn\u2019t tell you if you have a house, how much it will be worth a year from now.
\nKevin:<\/b>\u00a0 How do you find that out?
\nRichard:<\/b>\u00a0 The way you find that out is by constructing an index using just houses that were bought and sold multiple times without any structural changes such as renovations, subdivisions, or anything like that. If you just use those, basically, what you\u2019re getting is the true capital growth and you\u2019re taking out all other factors that are adding value to the housing market, which is reported in averages.
\nKevin:<\/b>\u00a0 Where can the average punter get that sort of information?
\nRichard:<\/b>\u00a0 Our website, quite simply. It\u2019s something we\u2019ve been working on recently, especially since it\u2019s not really out there that much. Housing indexes are done on a very big basis \u2013 say, all of Australia, for example, would have a housing index. But if you want to invest in a city or even a specific section of suburbs, it doesn\u2019t really tell you enough.
\nWhat we\u2019re doing at the moment is we\u2019re working on constructing indexes for suburbs, specifically, and also for cities such as Melbourne that give you much more in-depth insights into the true capital growth.
\nKevin:<\/b>\u00a0 Will that information be available for all of Australia or just for Melbourne?
\nRichard:<\/b>\u00a0 Because we\u2019re a rather small team, we\u2019re just going to be working on Melbourne at the moment. But we might be able to do a collaboration in the future on all other areas, as well. It just depends.
\nKevin:<\/b>\u00a0 The website is SecretAgent.com.au. That\u2019ll get you there.
\nRichard, I want to thank you for giving us your time. We\u2019re unfortunately out of time, but it\u2019s really interesting. As I said, it\u2019s one of my major frustrations, this focus on medians.
\nRichard:<\/b>\u00a0 Me, too.
\nKevin:<\/b>\u00a0 The website to go to: SecretAgent.com.au. Richard, thank you for your time.
\nRichard:<\/b>\u00a0 No worries. Thank you very much.<\/i><\/p>\n","protected":false},"excerpt":{"rendered":"

  We sort out the confusion that surrounds media reports that confuse median price movements with actual market fluctuations. Transcript: Kevin:\u00a0 One of the frustrations I\u2019ve had from time to time is how the media constantly plays on medians. If you see a movement in…<\/p>\n","protected":false},"author":176692471,"featured_media":4665,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[10,11,13,22],"tags":[101],"class_list":["post-7884","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-kevin-turner-sponsored-channels","category-kevin-update","category-latest-story","category-research-topic","tag-podcast"],"yoast_head":"\nMedians are misleading - Realty Talk<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/channels.realty.com.au\/realtytalk\/medians-are-misleading\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Medians are misleading - Realty Talk\" \/>\n<meta property=\"og:description\" content=\"  We sort out the confusion that surrounds media reports that confuse median price movements with actual market fluctuations. 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