The median stripped bare? Well....
Monday, February 1, 2010 at 9:20AMThe Age newspaper today published an article analysing differences in the way different market research companies report the median selling price for different suburbs. This is an important point to discuss, but I was not concerned by the analysis as much as this definition of median:
“However, it is worth keeping in mind that the median price is not the same as thing as the average price. It is simply the middle sale price when all property sales are arranged chronologically.”
Um, no actually. For a given month, the middle sale price when sales are arranged chonologically (in time) would be the price received around the 15th of the month (assuming an even sales rate through the month).
For the record, here are the definitions you need. When we talk “average” we may mean one of three measures.
- The median is the middle value, when prices are arranged in order from lowest to highest.
- The mean (most commonly just called the average) is just the sum of all the prices, divided by the number of sales.
- The mode is the most common sale price.
In many cases, these three measures are very similar, but not always.
It’s worth noting that the mean is highly susceptible to outliers - a one off $10 million dollar property sale will inflate the mean price, but leave the median less affected. This is why the median is a more stable measure of things like house prices, which are likely to have a number of small outliers (very low or very high prices).
Now that’s settled, the rest of the article is worth reading - it discusses why understanding the drivers behind changes in these measures is so important. For example, if a jump in median house prices reflects a drive by investors moving on high end properties, it does not necessarily translate to making a killing on selling a low end property to a young first buyer market.
This is important to think about, but the first step is to understand the basics of what the measures actually mean.
admin
Please note, the incorrect definition in the original article has now been recified.
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Reader Comments (4)
Hi,
I note that in the current version of this article, the word 'chronologically' has been replaced by the words 'in order of value', which seems to correct the mistake.
Ah, that's good to see.
Well written, a clear explanation for a change. And something to consider when making decisions on the basis of numbers represented by the media perhaps?
It is important to note, that for some types of environmental monitoring data (not house prices), the data can consist of many many zeros and a few higher values. In this case, the median will also be somewhat misleading, as it will be 0. I walsy feel that any measure of central tendancy on its own is useless - some consideration of the variability should always be reported. This wont happen in a newspaper though...