Real Estate Blog - Info: Making Sense Out Of Median Sale Prices

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Info: Making Sense Out Of Median Sale Prices

A couple of months ago, I posted Info: Understanding Averages and Medians which explained the reasons for using median instead of average when looking at sale price and DOM. It's also important to keep in mind that the median sale price can fluctuate due to changes in the mix of sales. For example, the median home price here in Santa Clara County increased for several months during the summer, breaking records even as the number of transactions dipped and inventory swelled to record levels.

Which numbers tell the real story?

I would argue that the number of transactions is the most important indicator of the health of any market. The reason median home prices increased was because the sub-prime lending crisis had a disproportionate effect on the number of affordable home sales. As a result, high end home sales made up a larger than usual percentage of completed transactions, distorting the median selling price. This theory was proved by examining DOM for inventory at different price ranges.

We could also rely on common sense. When a market is functioning properly, transactions occur. When the number of transactions falls, it indicates a fundamental flaw in the market. It's a good idea to remember this before using a median sale price distorted by the sub-prime crisis to try to tout a fundamentally flawed market.

Frank Jewett

Posted by Frank Jewett on 12/28/2007 03:13 AM

Comments (4)

info, strategy, median, sale price, market

4 Comments on Info: Making Sense Out Of Median Sale Prices

The problem with average and median price is we use it in too big a market if we stay in a small segment of the market with similar home it makes some sense but it can be affected by market conditions in different price ranges and I agree the number of transactions indicate the condition of the market. Thanks for you post.

12/28/2007 06:08 AM

by Terry Westbrook ~ Realtor(R) Grand Rapids Mi Ada/Cascade Real Estate (Five Star Real Estate, LLC Grand Rapids , MI)

There are lots of folks that use the words "median"and "average" without knowing the difference. The best way I have learned to explain the difference is this story.

A Seattle city bus has 9 passengers, the median income of these passengers is $50,000 (ie 4 have incomes over $50000 4 under $50000 and 1 has an income of exactly $50000.) The average income for these 9 passengers is also $50000. At the next stop one passengers gets off and another gets on. The median income of the nine passengers stays the same, $50000, but the average income is now $20,000,000. ....how can that be......Bill Gates got on the bus

As you suggest averages can really be skewed by just a few high valued properties thrown into the mix

12/28/2007 06:56 AM

by Ron Parise (LocateHomes.com)

Another problem is that statistics become less meaningful as the sample size shrinks. The fewer transactions we have, the easier it is for outliers to distort the numbers, especially when you are trying to track micro markets based on zip codes or neighborhoods. Thanks for the responses!

Frank Jewett

12/28/2007 11:31 PM

by Frank Jewett (tech4REpros)

Frank, Liars figure and figures lie.

I liked Ron's Seattle bus story. It supports my thesis.

Bill Roberts

12/29/2007 05:11 PM

by Bill Roberts - "Baby Boomer" Retirement Planning (Brooks and Dunphy Real Estate)

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