To fully understand reported market statistics one must understand a few statistical terms, how they are computed, and why they don't necessarily tell the whole story.

The three most common statistics used are: mean (or average), median, and mode. The most commonly misunderstood is the median while the mode is seldom reported. It's easiest to understand these terms using some numbers as an example. Assume during one month a home sold at each of these prices:

100,000 100,000 200,000 300,000 400,000 600,000

Mean (or average) = 283,333; median = 250,000; mode = 100,000; total sales = 6

There are six numbers in the series; therefore the median is midway between the two centered numbers - (200,000 + 300,000) divided by 2 = 250,000. What's important is that 50% of the numbers are below the median and 50% are above the median. This is the definition of the median.

The mode is the number in the series that occurs most often. In this case there are two home sales at 100,000.

When you read a headline such as "Home prices in the month increased 10%", look closely to see exactly what increased - the mean or the median. In either case, the statistic is most representative of the population or group of homes sold rather than actual increasing (or decreasing) prices. Look at the series of numbers again with two changes underlined.

100,000 100,000 100,000 200,000 300,000 400,000 600,000 700,000

Mean (or average) = 312,500; median = 250,000; mode = 100,000; total sales = 8

What happened to the price of homes just looking at these statistics? What's most important that one can infer?

Based on the data and computed statistics for the second group of homes we cannot conclude anything about a change in prices or home values although the mean did increase by about 10%. Actual "price increases" can only be done by comparing the sale of the same or like homes from one period to another.

For this example what is most important, in my view, is that the sales volume increased by 33%. People are buying, that ultimately will result in decreasing inventory followed by price increases.  The average price increased only because of two additional sales one was a very high-priced home, comparatively, and one was a low-priced home each at the extremes.

The distribution of homes that sold, in this example, is skewed to the lower priced homes. From this you might infer that it may be the increased availability of lower priced homes that is driving the sales volume upward. Perhaps price reductions are making more homes available in the lower priced segment.  Does this means that prices are going down? It very well could mean that.