You are looking to buy in a particular suburb and you are trying to get an idea if you are going to find something that suits your budget.
You read about property average prices in a several suburbs. Does reading an average property price help you much if you are new to real estate? I think it can confuse more than it helps. I am not a mathematician so I am no expert but this is how I see difficulties arise.
Let’s look at an imagined example – very simple. One property sells for $1 million and three other properties sell for $250,000 each. So to average you add up the four and there is a total of $2 million and then you divide 4 (by the number of properties) and the average is $500,00.
If you have a budget of $350,000 you think you won’t be able to afford that suburb but actually there were three properties that you could have afforded.
I can hear you saying that it is unlikely to have that kind of spread in a suburb. BUT it does happen. Often there is an original house, perhaps a large 2 storey Victorian house which once would have had very generous surrounding land. Over time that land was carved off and sold and now the mansion type property is surrounded by modest homes. There can be several examples of this in older suburbs.
Sometimes when calculating averages the person doing it ignores the highest and lowest numbers to eliminate spikes. Also the greater the number of properties included the more accurate the average will be.
The difficulty with the data that often is quoted is that the reader has no idea of how the average was calculated.
Knowing the median price of a suburb is much more helpful. In the simple example above the prices would be put into a list and a line drawn through the list so that there are the same number above the line as below the line. The line becomes the median price. So $1M and $250,000 above the line and 2 lots of $250,000 below the line.
So median price is $250,000 which is a much better indication of prices for that suburb.
Keep in mind this is a ridiculously simple example. All I want you to do is think a bit more when you read average price results and don’t panic. Knowing your numbers is very important but knowing where the numbers come from is equally important.