When tracking the strengths of the housing market, it is common for commentators, economists and consumers to use averages as a gauge. Whilst averages can offer a general overview of the property market, relying on their accuracy can have mixed results.
Averages tend to not pick up on the money invested in renovations by respective owners in their homes. As a basic example, a home sells for $850,000 in 2008 and resells for a similar price in 2012. Without any further knowledge, the most likely conclusion one could draw is that the market has traded sideways in that time. But what if the property had $200,000 in improvements and renovations done to it between 08 and 12?
The real question in such circumstances is – has the real value of the property dropped, or have the renovations caused the price to drop?
Averages and median house prices tend to miss distortions and anomalies. If 2 or 3 landmark residences sell well above the suburb average in a 12 month period, unless similar sales take place in the following 12 months, the averages can be easily distorted. This is common in locations such as Warrandyte where the annual number of transactions is low and much more likely to be distorted – albeit unintentionally.
In suburbs such as Doncaster and Doncaster East where there is substantial sales volume on an annual basis, the averages are less likely to be distorted.
One of the best ways to gauge market movements is note what a particular house sells for and subsequently re-sells for without having being renovated or improved. Unfortunately, it takes time for this type of data to emerge making it largely ineffective.
It is not that average or median house prices often quoted by the media are irrelevant, it’s that they are open to inaccuracies and misreads.
When it comes to the housing market, there are trends, statistics, untruths, lies and distortions. Only by watching and tracking the market will you learn what’s what!