- Median prices are the most popular real estate metric
- Low sales in an area and diversity of housing stock can lead to large fluctuations
- Spotting hidden trends requires deep diving into the data
My marketing research tutor at university (many moons ago) would regularly tell us: “there are three types of lies: lies, damn lies and statistics!”
In real estate, we focus on median house prices and fawn over their increases. It is the best, albeit crude, metric but it is most relevant in areas where the houses and land sizes are mostly similar. It becomes less useful in areas where there are few sales or a broader range of different property choices.
Fig Tree Pocket QLD 4069: 400 to 40,000sqm!
Take for instance Fig Tree Pocket; a leafy suburb in Brisbane’s west and home to both the world-famous Lone Pine Koala Sanctuary and the renowned Fig Tree Pocket Equestrian Club.
Nary a unit to be found, this is a desirable and tightly-held enclave of barely 1,300 houses with 88% owner-occupiers.
Professionals, families, retirees and tycoons reside in a broad mix of styles from mid-century to contemporary builds on quiet streets, riverfront and large acreage lots. Land sizes range anywhere from 400sqm to 4 hectares (the average being 1,638sqm).
Record median house price broken
The median price for Fig Tree Pocket just hit a record $1.3m for the 12 months through April 2021. But the suburb is known for large fluctuations in this metric with wild swings anywhere from -25% to +30% over a given period. These fluctuations occur not only because of the wide diversity of house quality and land sizes but also because of relatively few sales per year.
In fact, there were only 79 sales across an enormous price range from $579,500 all the way to $5,000,000 (an extension to the multi-hectare compound of Queensland’s richest man). It is hard to pick out any actual trend in the data if we look at the scatter plot of these sales in the chart below.
If the median price is just a lagging indicator, then how can we be sure that the recent reported gains won’t just be erased as quickly?
The median is just the mid-point of where half the sales sold for more and half sold for less. In this case, we can pinpoint the actual “median” property 🔸 which was a home that sold for $1,300,000 back in November 2020. That is ancient history in this market.
Outliers can cloud our vision
We use median price in real estate rather than average price (sitting at $1.48m) which can be skewed by outliers. The outliers in Fig Tree Pocket were the nine sales above $2m characterised by riverfront and large acreage properties. We shouldn’t read much into this very small sample size.
So, let’s look below $2m at the main cluster. If we zoom in on this, at the lower end, sub-$800k properties are becoming rarer and rarer. At the higher end, the $1.75m mark is being smashed more consistently including eight times in the last three months alone.
Finally, we can group the higher and lower ends into distinct clusters which both show clear upward trends. Fig Tree Pocket has definitely been on a strong uptick!
The recent higher sales will bolster the median price for some months to come.
Each month, the sales of 2020 – and especially those during the COVID lockdowns of last winter – will drop off and be replaced by the most recent sales of 2021; which continue to strengthen by all indications.
This is just like the professional tennis player whose ranking is not only affected by his or her most recent result but the points that are dropping off their tally from the tournament they played 12 months ago.
Be prepared for real estate media to fawn over record median house prices for some time to come. Spotting a future change early though requires a deeper dive into the data.