Headline: Melbourne median price jumped 22% in 6 months (July to Dec 2009).

Wow, sounds great. Right?

What it should read is: Melbourne buyers are buying more expensive properties. They are not necessarily paying more for a property, they are just upgrading. No need to get excited.
OR
In Fashion: $600k to $900k homes for home upgraders,
Out of Fashion: First Home Buyer market $500k or lower.

But those headlines won’t sell.

Let me explain why…

Beware folks. Reports in the paper about Real Estate House prices and Property Capital Growth can be manipulated quite easily. When reading reports of massive capital growth and good times ahead, always understand what the reporter is actually talking about, or using as evidence.

Maths Lesson 101: Average vs Median Sale Prices

Average House Price: add up all the numbers and divide by the number of numbers.
Example:
$300,000
$300,000
$500,000
$900,000
$1,000,000
add them up equals $3m. Divide $3m by 5 property sales and the answer is $600,000 average sale price.

Median Sale Price: is the exact middle number in a sequence of numbers.
Example: in the above sale prices, the middle number is the third number which is “$500,000” which is the median. In this case the median has exactly two numbers on each side of it. Now if there is no middle number, such as one more sale at $400,000, then average the two middle numbers, which would be an average of $400k & $500k resulting in $450k median sales price. Remember to order all the numbers from low to high before you start computing the median.

So, above we have an average sale price of $600,000, and a median sale price of $500,000.

So what’s your house worth? And what affects these prices?

If your suburb has a wide range of property, say small units at $300,000 and a few large homes with big land selling at $2m, the average price is stretched higher when the large homes sell, inflating the reported average price of a home.
Of course the more properties sold in a suburb, the more they average out, however in a smaller population, the average price may not be accurate. Easily skewed.

A more accurate trend indicator is the median price. Median (or middle) just means there is more volume or sales headed in one direction, showing a trend or central tendency. It does not mean property prices have risen, it just means buyers are looking in a certain range of property instead of another.

Current Property Price Trends
You may have read that most median prices have increased by 10% to 15% across some capital cities in the past 12 months. (Melbourne, Brisbane, Sydney)

It sounds great, however this does not mean you will get more dollars for your property.

Currently, First Home Buyers who have traditionally targeted property under $500,000 (to receive the highest amount of Grants and concessions), have now quietened down a little and investors that waited for things to calm down + restless home “upgraders” have moved into a higher priced property market, around $500k to $900k in some capital cities.

In an nutshell, a different group of buyers has taken over. They are still looking for a bargain so don’t think you can ask for more for your property just yet.

Conclusion:
In Sydney, the median is now over $630,000 reflecting this shift in buyers.
In Melbourne, the median is now over $540,000, reflecting similar trends.
It does not necessarily mean properties have risen in price (maybe just a little), it merely states that a higher price bracket is in favour right now. Remember, things come back into fashion, like an old pair of “volleys”or your brightly coloured “Wham” T-shirt, so don’t feel too disheartened.

So beware of the hype in the press, and understand that the median is not conclusive evidence of property price increases, nor a reason to invest in that city. Buy wholesale, bargain well and invest wisely with solid investment fundamentals like: Buy Low, Sell High.

Now that the maths lesson is over, go do your homework!

With the New Year bringing fresh opportunities in property investment, smart investors are snapping up properties at a good price while most of the buyers are still returning from holidays. If you are one of the early birds, here are four tips you may find useful:

1.    Pick an investment method before you buy
Have the “end in mind” and know what you will do with the property. Do you plan to keep it until market conditions improve and then sell it? Are you renovating or detonating? Or will you make it your new home at some stage?

2.    Inspect the property from an investor’s point of view
Seeing through investor eyes while choosing properties will lead you to more profitable deals. The name of the game is simple: Buy Low, Sell High. Cheap houses that need repair will probably turn you off as a home owner but will attract you as an investor.

3.    Study the area, include sales data research
It is crucial that you study the area where you want to invest. Know your market and think about who you will be selling to. Keep up-to-date with the actual sales in the area, not just the listed prices on the internet. Spend a few dollars if you have to, it will save you a packet in the long run.

4.    Make your first offer unrealistic
Veteran investors say that if the seller accepted your first offer, you paid too much. One of your key responsibilities is to purchase the investment property for the lowest price possible. Don’t be afraid to throw in a ridiculously low offer at first. Make it appear that you’re serious. You’ll never know when the seller will bite your bait.

Commonwealth Bank and Westpac have combined to take 80% of credit growth over the six months from March to October 2009. During this period, credit growth had slowed to its lowest level since 1992.

Our domestic banks wrote $53bn of credit, while foreign and regional banks & non-bank lenders reduced their lending by $43bn, netting $10bn increase over the 6 months. Despite the slowing, we may have hit the low point in the credit cycle as there are signs of increased credit growth for Australia in 2010.

What does this signal?
There is a clear lack of competition at the moment. CBA (who own Bankwest, and 33% of Aussie Home Loans) and Westpac (who own St George, Bank of SA, RAMS, Bank of Melbourne) are very dominant in Australia, using their advantage with domestic deposits to provide a cheaper source of money. There was a big flight to deposit safety in banks during the GFC, and overseas money is still expensive for our other lenders who are struggling to compete.  So much for the 4 pillars policy…

Remember, if you are confused which lender to use, Plan Assist have over 21 residential and 12 commercial lenders on their panel providing you with choice to suit any need. Call Anton or Garry with your loan scenarios on 02 9449 2333 for the latest and greatest on lender choice.

In a surprise move, the Reserve Bank of Australia announced it is leaving the cash rate unchanged at 3.75% as it waits to see the effects of earlier rate rises.

In a statement released yesterday, Governor Glenn Stevens stated the continued legacy of the financial crisis affected its decision.

Stevens also noted that economic conditions in Australia have been stronger than expected, adding that we have lower than expected unemployment, modest inflation and expanding credit for housing.

So, sanity prevails. The short term money market had already priced in a 0.25% increase and got it wrong. They may just leave the increase in there for next month’s RBA meeting.