Average house prices in South Africa: What the numbers really mean

Average house prices are frequently used to describe developments in the South African property market. We hear that the average property price has increased, that one province is more expensive than another, or that house price growth is accelerating or slowing.

But what does an “average house price” actually tell you?

While average prices can provide useful context about the broader property market, they don't tell you what a typical home should cost, and they certainly don't tell you exactly what a particular property is worth.

For buyers, sellers and property investors, understanding what sits behind the number is far more useful than simply knowing the number itself.

What does an average house price actually mean?

At its simplest, an average house price takes a collection of property prices and uses them to indicate the general price level in that dataset. However, not every property report measures the market in the same way.

One report might be based on properties transferred during a particular period, another could focus on properties financed through a particular lender, while another might track asking prices or use a house price index designed to measure changes in residential property values over time.

You may also encounter both average (mean) and median property prices. The mean is calculated by adding all the property prices together and dividing the total by the number of properties. This figure can be pulled upwards or downwards by particularly expensive or inexpensive sales. The median, by comparison, is the middle price when all transactions are arranged from lowest to highest. This can sometimes provide a useful additional perspective because extremely high or low sales have less influence on it.

Neither measure is inherently better in every situation. The important question is: what exactly is being measured?

Why can two reports give you different house prices?

It isn't unusual to see different organisations publish different figures for South African house prices at roughly the same time.

That doesn't necessarily mean one of them is wrong.

The reports may be looking at different:

• property types;

• price bands;

• geographical areas;

• transaction periods;

• sources of property data; or

• methods of calculating price movements.

For example, a dataset consisting largely of bonded residential transactions may produce a different result from one incorporating a broader range of property transfers.

This is why comparing the headline number from one report directly with the headline number from another can sometimes be misleading.

When reading property market data, look at the source, methodology and period being measured as well as the number itself.

Why the national average doesn't tell you what a home should cost

One of the biggest limitations of an average house price is geography. There is no single South African housing market.

Property conditions can differ substantially between provinces, cities and towns; and those differences become even more pronounced at suburb level. Two suburbs a few kilometres apart can experience very different demand, available stock, selling times and price growth. Within the same suburb, properties in different security estates, complexes or streets can command very different prices.

The same applies to property type. The market for a two-bedroom sectional title apartment may behave very differently from the market for a four-bedroom freestanding house in the same area.

This means a national average might tell you something useful about the direction of the broader residential market, but very little about whether a particular home is fairly priced.

The closer the data gets to the property you're actually considering, the more useful it becomes.

How the homes being sold can change the average

There is another important limitation to average property prices: the mix of properties sold during a particular period can change.

Consider a simplified example.

Imagine that more high-value homes are sold in an area this month than last month. The average transaction price could rise simply because a greater proportion of expensive properties changed hands. That does not necessarily mean every property in the area suddenly became more valuable.

The reverse can also happen. If transaction activity becomes concentrated in lower price bands, the average selling price may decline even though the underlying value of individual properties has not fallen by the same amount.

This is one reason why property indices and longer-term trends can sometimes provide better insight into the direction of the market than a single average transaction price.

Average house price and house price growth are not the same thing

These terms are often used alongside one another, but they measure different things. An average house price describes the price level within a particular dataset. House price growth, on the other hand, attempts to measure how residential property prices are changing over time.

So, if a house price index reports annual growth of 5%, that does not mean every South African home has increased in value by 5%.

Some areas may have grown faster, others more slowly, and individual properties may have performed very differently depending on their location, condition, property type and local demand.

House price growth is therefore best viewed as an indicator of the direction and momentum of the market rather than a personal property valuation.

What actually determines what a property is worth?

When determining whether the asking price of a particular property is reasonable, broad averages become much less important. The property's local market becomes the focus.

Factors that can influence its value include:

• Recent comparable sales: What have similar properties in the immediate area actually sold for recently?
• Location: Proximity to schools, employment nodes, transport routes, shops and other amenities can influence demand.
• Micro-location: Two properties in the same suburb may have different values because of the street, position within an estate, views, traffic, security or proximity to amenities.
• Property type and size: Buyers compare like with like. A townhouse, apartment and freestanding house shouldn't automatically be evaluated against the same suburb-wide average.
• Condition and improvements: Renovations, maintenance, energy solutions and other improvements can influence marketability and what buyers are willing to pay, although owners shouldn't assume every rand spent on improvements will translate directly into additional value.
• Supply and demand: Where suitable properties are scarce and buyer demand is strong, sellers may have greater pricing power. Where buyers have plenty of alternatives, they can afford to be more selective.
• Time on market: How quickly similar homes are selling can provide useful insight into the balance between buyer demand and available stock.
• Affordability: Ultimately, property values are also constrained by what the available buyer pool can realistically finance and afford.

Related reading

Questions to ask your real estate agent before buying or selling property

National averages provide context, but property markets are local. Find out what to ask your estate agent about pricing, demand and market activity in your area.

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How buyers should use average house prices

For buyers, average prices are best used as a starting point for research rather than a buying target. They can help you compare broad markets, understand whether certain areas generally fall within your budget, and identify trends worth investigating. Once you start considering a specific property, however, your research should become much more local.

Look at comparable properties currently for sale, recent market activity, the characteristics of the property itself and the level of demand in that particular area.

It is also important to separate value from affordability. A property can be fairly priced for its market and still be too expensive for your personal budget. Your decision should therefore take into account not only the purchase price but also your bond repayment, rates and taxes, levies where applicable, insurance, maintenance and other ongoing ownership costs.

How sellers should use average house prices

For sellers, rising average prices can be encouraging, but they shouldn't automatically be applied to an individual property. If national house prices have risen, for example, that doesn't mean you can simply increase your expected selling price by the same percentage.

Pricing a home requires a much closer look at what comparable properties have sold for, what competing properties are currently asking, how long homes are taking to sell and how much buyer demand exists in your particular price bracket.

An experienced local estate agent can help interpret this information and provide context that broad national statistics cannot.

Importantly, the highest asking price is not necessarily the property's market value. A property's eventual selling price is ultimately determined by the point at which a willing buyer and willing seller are able to reach an agreement.

Look beyond the headline number

Average house prices are useful because they give us a simple way to talk about an incredibly complex property market.

But that simplicity is also their limitation.

Instead of asking only “What is the average house price?”, consider asking:

• What data is this number based on?

• Is it an average price, median price or house price index?

• What geographical area does it cover?

• What types of properties are included?

• Is the change caused by property values or by the mix of properties being sold?

• How does the broader trend compare with what is happening in the suburb I'm interested in?

Those questions turn a headline statistic into information you can actually use.

Explore what's happening in your local property market

National averages can help you understand the direction of the broader housing market, but property decisions happen locally. And when you are buying or selling a specific property, combine that research with the knowledge of an experienced local estate agent who understands the area's recent sales, current competition and buyer demand.

Average prices provide the context. Local data helps tell the real property story.