Newcastle figures show why you can't trust median prices

The local newspaper in Newcastle has declared, erroneously, that inner-city units “have piled on more than 20% equity for their owners in the past 12 months”.

It’s a sadly typical case of a non-expert writer misunderstanding and misinterpreting statistics.

What has really happened in Newcastle? The sale of new upmarket apartments has lifted the median unit price. According to Domain, the median price for apartments in the Newcastle LGA has risen 23.6% in 12 months.

The journalist reporting this interpreted it as “Newcastle LGA unit prices have climbed a whopping 23.6%”.

Regrettably, it’s another example of someone writing about a subject beyond their expertise, not that it takes a genius to understand the workings of median prices and how they mislead more often than they inform.

The median price has risen 23.6% but property values have not.

I would delighted if property values had increased that much because Newcastle is a location I’ve recommended to investors over the past couple of years. If people who had acted on that tip had experienced a 20%-plus rise in wealth, I would feel validated. Nothing as strong as that has occurred, however.

I have often said that Newcastle is one of Australia’s most underrated property markets. I see if as an attractive alternative to Sydney for both home buyers and investors seeking affordable real estate is a growth economy with plenty of attractive lifestyle factors.

Newcastle has the world’s largest coal export port and coal is on a downer, but Newcastle has continued to pump because the city has other drivers. There has been big spending on infrastructure in Newcastle and the Hunter region – including the $1.4 billion Hunter Expressway - and there’s plenty more to come, notably in the CBD.

The real estate market has responded with solid growth in property prices. But the market has not jumped 20%-plus.

Caution is always needed when dealing with median prices. Often they’re a comment on the type of property being sold, rather than the movement in values.

If an upmarket project is sold during a given time period in a particular suburb, it will elevate the median price. Conversely, if a budget estate is sold, it may have the effect of pulling down the median price for the suburb, but this should not be seen as a decline in values.

The only way to accurately gauge movements in values is to examine re-sales. I have seen many instances where the median price has decreased at a time when property values are rising – and vice versa.

So it’s plain wrong to tell newspaper readers that owners of Newcastle apartments have had a 20%-plus increase in equity.

The caution consumers should take over real estate statistics extends well beyond median prices (and median rents and median yields). Rubbery figures are bouncing around many of our property markets.

The report on Property Observer this week on Sydney auction results is a case in point. Two major data sources put contrasting interpretations on the weekend results. One said the results showed the market rising while the other suggested it was evidence of decline.

The numerous occasions in which commentators have declared the so-called property boom over, on the basis of a single month’s price data from a single source, is further evidence of the perils of misreading property statistics – especially those relating to movements in median prices.

The best way to chart the rise or fall of individual markets is to monitor changes in sales volumes.

Terry Ryder is the founder of hotspotting.com.au. You can email him or contact him on Twitter.