How expensive is the housing market?

27th Nov 2017By: Tim Lawless

When asked ‘how expensive’ a housing market is, most people will refer to the median price or median value of properties in the market. The median price is a perfectly valid and meaningful way to get a quick feel for the pricing of a typical house or unit in a given region, however the median doesn’t give much of an indication about the range of housing prices.

A ‘typical’ buyer may be looking for the ‘typical’ house or unit, but most prospective buyers aren’t exactly ‘typical’. Some will be looking for properties at the higher end of the pricing spectrum, while others may be seeking out entry level properties that are better suited to a slim budget. For this reason, examining quartiles or even deciles can give a much better view on the range of housing within a region.

Take the Sydney housing market as an extreme example. The median house value in Sydney at the end of the October was $1.076 million. Clearly housing prices in Sydney are high and unaffordable for many. However, if we look at the range of pricing, entry level house prices are typically around $615,000 or less (based on the first decile) while for those seeking out a property at the highest end of the market, they will generally be spending at least $3.351 million (based on the ninth decile). The interdecile range, which is simply the difference between the first and ninth decile is a substantial 261% or $1.6 million.

Sydney (261%) shows the largest spread in housing prices by quite some margin relative to the other cities. Melbourne (223%) is the only other city with a spread of more than 200%, while Darwin (95%) is the only city where the spread is less than 100%.

The diversity in housing prices can be extreme in some suburbs. Based on an analysis of SA3 statistical regions (SA3’s are part of the Australian Bureau of Statistics standardised geography classifications), Melbourne’s Stonnington East shows the greatest diversity of housing values in Australia with an interdecile spread of 530%. The valuation spread ranges from $477,8000 at the tenth decile to $3.009 million at the ninth decile.

The capital city region with the least diversity in house values is St Mary’s, located about 45km west of Sydney within the Penrith council area. The interdecile range is 37%, ranging from $519,000 (first decile) to $761,000 (ninth decile).

The range in dwelling values across a suburb or, for that matter, a city, highlights how diverse housing markets are. While it’s important and useful to track housing market conditions broadly to understand the trends in market performance, when buying a property its all the more important to drill down below the surface and understand the microcosm of housing values. Values can, and will, vary remarkably based on factors such as location, quality of the dwelling, area and shape of the land and proximity to key points of interest which can add a premium, or in some cases a discount, to the property’s value.