FAQ’s (statistical)

REIWA has prepared the following explanations and examples to answer many of the typical questions that are asked about property price measurements and statistical concepts. Reference is made to data presented both on www.reiwa.com.au and also in the Property Report released quarterly by The West Australian using data provided by REIWA.

REIWA along with the Real Estate Institute of Australia www.reiaustralia.com.au also produce more detailed quarterly reports; Market Update and Market Facts which are available by subscription.

• What is a median price and why do we use it?
• What data does REIWA use to calculate its median prices?
• What is a preliminary median and why is the final median different?
• What is the difference between 'quarterly' medians and 'year to' medians?
• Why are there different ways that percentage changes are quoted?
• What are Upper and Lower Quartiles?
• Why does the annual percentage change presented in the Property Report differ if I compare this year
• Worked examples of property price measurement

What is a median price and why do we use it?

The median price is the middle price in a series of sales. For example, if there are 15 sales recorded in a suburb and these are arranged in order from lowest to highest value, then the eighth sale is the median price. In the case where there is an even number of sales in a series, the median is the average of the middle two prices.

An average price is different to a median as it is calculated by adding up the value of all the sales and dividing it by the number of sales.

Median prices are generally used in property analysis rather than average prices because median prices are unaffected by a few unusually high or low prices that may skew averages. The median represents a more accurate measure of true market activity.

Whilst the median provides a general indicator of the trend in property prices for the majority of the market in a suburb, care should be taken when applying the results to an individual property as prices may be influenced by a range of unique factors including age, house and lot size and condition. The accompanying example highlights the uniqueness and variability of price of each property.

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What data does REIWA use to calculate its median prices?

REIWA uses transfer of title data from the Landgate Information as the basis for calculating various statistical parameters. It is important to appreciate that medians are calculated using price data based on the sales contract date rather than the settlement date. However the sales data is not available from the Landgate Information until after settlement has occurred which delays the timing of REIWA releasing its analysis.

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What is a preliminary median and why is the final median different?

When REIWA publishes its initial figures on

www.reiwa.com.au

For example, in the March Quarter 2006, Perth's preliminary median for the quarter was $353,000 but as the balance of the records are added from the latter part of the quarter, the final median for the March Quarter increased to $365,000. Factors influencing an increase between preliminary and final medians include:

• more affordable properties often have shorter settlement periods, hence the data is received earlier, and
• in a rapidly rising market as experienced during 2005-06, prices increase monthly and therefore later records are generally of a higher value.

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What is the difference between 'quarterly' medians and 'year to' medians?

Various media present a variety of median prices. REIWA publications present both:

• Quarterly medians which represent the median sales value for a particular quarter. Publication of this figure is generally restricted to overall markets such as Perth, Mandurah, Greater Bunbury and other regional centres, local government areas or sub-regional areas within the Perth market such as the Western Suburbs or Rockingham-Kwinana.
• Year to or annual medians represent the median of all sales transactions that occurred over a 12 month period. Suburb data is often presented at this level, particularly in the Property Report as there are often insufficient sales or compositional variations of the property traded within each quarter that make quarterly reporting and the associated percentage changes potentially volatile.

The accompanying example should assist in understanding these concepts.

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Why are there different ways that percentage changes are quoted?

Again, percentage changes are presented in various ways in the media. REIWA presents percentage changes in the following ways:

• Quarterly change is the comparison of the median of one quarter with the previous quarter. Generally this is restricted to larger overall markets such as Perth and regional centres but that is not to say it cannot be applied to suburbs assuming there is adequate sales volumes to provide a representative sample. Industry practice usually restricts reporting of median sales price to volumes of 30 or more sales.
• Annual or Year on Year change can be expressed either as:
  • the annual change between the medians in the same quarter for two subsequent years or
  • the annual change between medians for the year to date data compared with the previous year to date data. This is what is typically presented in the Property Report for suburbs.
• Average Annual Growth Rates for 5 and 10 Years are only calculated using annual medians and represent the average compound growth over the respective period.

It is therefore important to understand what data is being presented in the first instances, whether it is quarterly or annual and then the nature of the change being presented.

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What are Upper and Lower Quartiles?

Other statistical parameters that may be reported in the media or in REIWA research from time to time include the upper and lower quartiles. These are derived in a similar way to calculating the median by placing all records for a period in value order and identifying the values that represent:

• the top of the bottom 25% of the market the lower quartile, and
• the bottom of the top 25% of the market the upper quartile.

Use of quartiles and the relative movement in values of the quartiles between quarters or over the year help us to understand which part of the market is moving relative to the median. The lower quartile tells us that 25% of the market was priced at or below the lower quartile value whilst the upper quartile indicates the top 25% of the market was priced above the upper quartile.

It follows then that the remaining part of the market between the two quartiles represents 50% of the market and includes the median value.

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Why does the annual percentage change presented in the Property Report differ if I compare this year

When REIWA releases suburb data in the Property Report, it is important to appreciate that this is preliminary data and the annual percentage change is therefore preliminary. The percentage change is calculated using final data from the previous year and therefore it is not appropriate to calculate the change using the median published in the Property Report a year ago as this was also preliminary data and has invariably changed. The revised median for the previous year is available on Suburb Profiles at http://reiwa.com/ .

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Worked examples of property price measurement

The following examples have been prepared to assist in understanding the concepts mentioned. The initial part focuses on the overall Perth market to assist in appreciating the difference in price measurement using both quarterly and annual data and also how the percentage changes vary depending upon the nature of the analysis. The second example focuses on the suburb of Swanbourne and uses actual sales data to highlight the volatility and compositional change associated with small sales volumes at suburb level.

1. Quarterly and Annual Analysis
   1. Overall Perth Market - Analysis using Quarterly Data

      Final March quarter 2006 median	$365,000
      Final December quarter 2005 median	$336,000
      Final March quarter 2005 median	$285,000
      March quarter - Quarterly Increase	8.6%
      March quarter - Annual Increase	28.1%

   2. Overall Perth Market - Analysis using Annual Data

      Final Year to March quarter 2006 median	$330,000
      Final Year to December quarter 2005 median	$308,000
      Final Year to March quarter 2005 median	$270,000
      "Year to March quarter - Quarterly Increase	7.1%
      "Year to March quarter - Annual Increase	22.2%

      Comment: Firstly, the data highlights the variation in medians, whether it is a quarterly or annual median and secondly the analysis highlights differences in calculating both quarterly and annual percentages given the difference in the data samples.

2. Compositional Change and Quarterly Volatility
   1. Effects of preliminary and final median price data
      

      When the 2006 March Quarter Property Report released on May 27, 2006, the preliminary median price for Swanbourne for the Year to March 2006 was quoted as $895,000 based on 43 sales. The annual percentage change quoted for the Year to March 2006 was 4.7%, significantly lower than the overall Perth increase of 22.2% for the Year to March.

      The final median price for Swanbourne for the Year to March 2006 was $950,000 based on 51 sales, with the revised annual growth rate up to 11.1%.

      These annual increases are based on the final median price for Swanbourne for the Year to March 2005 of $855,000 and not the preliminary figure of $780,000 published in Property Report of May 2005.

   2. Implications of small volume suburb data
      

      The accompanying table of quarterly sales data in Swanbourne for the June, September and December quarters in 2005 and the March quarter of 2006 highlights:

      • Significant variability of sales volumes across the quarters
      • The influence of stock composition on price in terms of lot size and age
      • Variability of both the median and average price across the quarters
      • Significant volatility in the quarterly change in median house price

      Comment: The individual property sales data supports the earlier comment that the median only provides an indication or trend within a suburb and the uniqueness of each property is reflected by the broad spread of prices.

Detailed sales record data is available to the public on http://reiwa.com/ at Search Past Sales. Whilst this is not a free service, purchasing data represents a small investment in research for what is often your biggest investment in life.

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