Melbourne residential property market on the mend? Property Observer navigates the muddling median maze

By Larry Schlesinger
Thursday, 31 January 2013

The weekend release of Real Estate Institute of Victoria (REIV) median house and unit prices for the December 2012 quarter were greeted with a mixture of surprise and some celebration, perhaps indicating greater resilience in the Melbourne property market than first thought.

The REIV reported a 7.8% gain in the Melbourne median house price over the final three months of the year to $555,000, with units up 4.2% to a median value of $456,000.

But while REIV chief executive Enzo Raimondo says the results showed strengthening demand from a “combination of improved Victorian consumer confidence, four interest rate cuts and the seasonal increase in activity in the December quarter”, other quarterly data cast genuine doubt over the turnaround.

December quarter figures released by RP Data-Rismark based on its daily updated index suggest the Melbourne property market continues to undergo a correction, with house prices falling by 1.5% over the quarter and units down 2.7%.

The data provider Australian Property Monitors (APM) released its figures today, showing a more modest 2.4% gain in Melbourne house prices and a 1% gain unit prices of the December quarter, with both markets essentially treading water over the past 12 months.

Factoring in the figures from APM and RP Data provides a more sobering view of house and unit price changes over the December quarter.

Melbourne houses

House price changes
	Quarter	2012	Median
RP Data	-1.5%	-2.9%	$550,000
APM	+2.4%	+0.5%	$526,000
REIV	+7.8%	+4.7%*	$555,000

Melbourne units

Unit price changes
	Quarter	2012	Median
RP Data	-2.7%	-2.5%	$435,000
APM	+1%	+2.2%	$391,000
REIV	+4.2%	+1.3%*	$456,000

*The REIV figures compare December quarter 2012 figures with December 2011 quarter figures. APM and RP Data are annual changes over 2012.

The differences can be partly explained by the different median calculation methods used and in the case of the REIV, by the quality of the data used to calcuate its December results.

The REIV bases its figures on the median price – that is it ranks all sales from high to low recorded over the quarter and plucks out the middle or 50th percentile observation.

Australian Property Monitors (APM) and RP Data use what some would consider more sophisticated measures of median property price changes.

APM uses a stratified median price method, which controls for changes in the composition of properties sold by separating the total sample of properties into a number of sub-samples. It also issues revised figures based on better available data.

RP Data-Rismark uses a daily hedonic index, which measures home price movements on a “like-for-like” basis according to their key attributes, such as location, land size, number of bedrooms and bathrooms, and is the only provider that does not revise its figures.

The gains reported by the REIV suggest there is a trend of improving property values, but readers should keep in mind a number of issues which may have impacted on the stronger-than-expected results.

Firstly, they follow significant downward revisions to September quarter figures, which increased the gap between REIV figures quoted for the December and September quarters.

The September quarter median for Melbourne houses was revised down from $530,000 to $515,000, while units were revised down from $442,000 to $437,500.

As a result of the revisions the December quarter gains were much greater.

The stronger REIV results in the December quarter were also impacted by a lack of sales in nearly two-thirds of suburbs, which would also have skewed the data.

Property Observer analysis found there were 166 suburbs (63%) that had fewer than 30 sales over the December quarter – meaning their median price changes are less statistically reliable.

Indeed, there were only 95 suburbs that recorded a statistically significant figure of more than 30 sales.

Given that the majority of suburbs in the December quarter figures had fewer than 30 sales and revisions made to the September quarter figures, it is likely that December quarter figures will be revised downwards by the issuance of the next quarterly report.

Readers could of course consider taking an average of the three data providers (as Melbourne property market analyst Monique Sassoon Wakelin suggested investors do in her ABC radio program last year), which thereby confirms that any conclusion of a dramatic December quarter recovery may be premature.

Averaging out the three data providers’ results, house prices rose 0.8% over the quarter while units are up 0.3%, indicating something of upward trend, but no major rebound.