The sky is falling again!!! Well, not really....
The definition for Median Price is: the numerical value separating the higher half of a sample, for example home prices, from the lower half. The median of a finite list of numbers can be found by arranging all the observations from lowest value to highest value and picking the middle one. (source)
So you see, the median price of say California home prices is the middle of all prices.
NEWSFLASH: Half Of All Homes Sold Sell Below Median Price!
That's right, HALF of all homes in Warren County sell below Median Price. It doesn't matter whether you live in Mason, Lebanon, Waynesville, Springboro, Franklin or anywhere else, HALF of the homes in each community will sell below Median Price for that community!
Sounds terrible doesn't it? And if I was a reporter with the agenda of pushing bad news, I could make this routine fact sound horrendous. Of course, I could just as easily say HALF of all homes sold sell ABOVE Median Price. Both statements are true when you understand the context of the numbers.
The real estate market is all about numbers, but those numbers without context and understanding don't really tell you the story. For instance, is average price or median price more relevant? First, we need to understand the difference between median and average.
AVERAGE PRICE: Take ALL homes sold, add all the prices together and divide by total number of homes sold for the time period you're examining.
MEDIAN PRICE: Rank all homes from least to most expensive. Go to the middle home in the stack, and that is your median price. You're dividing the list in half. Median Price is the balance point of the ranking, just like standing in the middle of a see-saw.
Let's make a theoretical case to illustrate:
Community Fairwinds had 5 homes sell last month, priced as follows:
The Average Price is: (200,000+210,000+225,000+235,000+825,000)/5 = $339,000
The Median Price is the home in the middle: $225,000
Now which price is more representative of Fairwinds community? $339,000 or $225,000? $225,000 right? Just like the old Captain Kangaroo game "which one of these is not like the others", that $825,000 isn't like the rest of the Fairwinds. Maybe it's in a pocket of luxury homes, maybe it came with 50 acres of land, but something about that home made it worth almost four times as much as the other homes.
Now anytime we have small populations of numbers, it's easier to shift the numbers. But even in real life, a few sales on one side or the other can tilt the view. Let's take two real world cases from right here in Warren County to illustrate. In each case, we're taking Cincinnati MLS data for 2012 residential sales year to date completed in the school district listed.
132 Sales completed 1/1/12 - 4/16/12
Median Price: $260,000
Average Price: $289,127
Min Sale: $39,000
Max Sale: $1,660,000
That's quite the range isn't it? The Average price is over $29k ABOVE Median. And you see that 1.66 million dollar sale? BY ITSELF, it shifted the average up $12,575. That's one powerful home!
84 Sales completed 1/1/12 - 4/16/12
Median Price: $154,723
Average Price: $145,000
Min Sale: $12,000
Max Sale: $425,000
Now here the spread isn't as drastic. And you'll also notice that in this case the Median is HIGHER than the Average price. In this case, there were five homes sold below $50k, and that pulled the average DOWN.
In both cases, the Median price gives a truer representation of the "typical" home in the community rather than the Average that can be heavily influenced by homes on either ends of the extreme.
Overall, watching the Median Price trend will give you the best overall indicator of a community's housing health. A consistently rising or falling Median Price gives you the pulse of that real estate community.
Should you sell? Should you buy? The answers are in the numbers and fully understanding the context. Call your local REALTOR® team for the full explanation of how it effects YOU and your home, or your potential home to be.
Serving Warren County's residential real estate needs,
Liz and Bill aka BLiz
The Liz Spear Team
Elizabeth & William Spear
RE/MAX Elite: Ask for us by name if you visit the office!
Two locations: Lebanon & Mason, OH
Office direct: 513-248-3660 Liz direct: 513-265-3004
Bill direct: 513-520-5305 Fax: 866-302-8418
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