If we looked at the statistics above and not what was happening at the coal face of the real estate market in Melbourne, nobody would be putting their properties on the market. There have been fewer sales than last year, the median house price is down, the interest rate has dropped and the stock market in Australia is lower. The median house price is calculated by putting all of the sale prices of the houses in a suburb, or the metro area, or whatever area you are calculating, in order from highest to lowest and then take the middle number. To use this method from year to year is fine if you have the same distribution of good, average and poor properties from year to year. You also need the same buying demographic. Are there the same number of investors, owner occupiers who are downsizing, upsizing, going bankrupt, getting paid better etc. To give you an idea of this let’s look at 11 sales in an imaginary suburb. The sales prices in thousands are as follows, 400,410, 420, 430, 440, 450, 460, 470, 480, 490 & 500. The median is 450 as it is the middle of all the sales. Let us now move forward 1 year and assume that the exact same properties sold for exactly the same prices. In other words the value of the properties have not changed at all. However, there were four fewer properties (36% fewer) put on the market: the 440, 460, 470 & the 490 property. Total sales now look like this: 400, 410, 420, 430, 450, 480, & 500. The median price however is now 430 even though not one house price sale changed yet statisticians would tell you that the median house price has dropped 3.6%."
