Meaning of Median

In Housing Boom I touched on a price-to-income measure for the state of the housing boom. For those who missed it, I simply questioned the disconnect between property prices and household wages.

There is a flaw in my logic. Median priced homes are not bought by median income earners in every suburb. In Sydney’s eastern suburbs especially, many people say they could not afford to buy the home they are in today if they had to pay today’s prices.

This may mean the prices are unsustainable but it more likely means owners will stay in their current homes for at least another 7 years (the average first mortgage life). At 10% compound return, an investment doubles every 7.2 years. Coincidence? I don’t think so. Historically that is what Sydney has done.

Median incomes include all income earners. School-leavers and low income earners skew the figures lower. Home and investment property buyers are not in that demographic.

2 thoughts on “Meaning of Median”

  1. In a lot of areas the boom had started by ~2000. As 2000 progressed and the stock market started to decline investors pulled cash out of the stock market and were looking for other places to invest that cash. Mortgage backed securities became more popular at that time. All of this money looking for a place to go fueled lenders desires to get people to take mortgages. In order to generate more business many lenders (not all, many) lowered their credit standards to appeal to a wider audience. This spurred demand for housing and started to drive up prices. It became a cycle. More people saw prices going up and were concerned about being left out or behind and jumped into the market which drove up demand for housing and therefore prices.

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