Average or Median Price
Which means more?
When you are looking at market trends for a particular real estate market you will often see average home prices and median home prices. These prices will reflect the sold prices on closed sales, because that is the only way to come up with a value. Asking prices of homes currently on the market will not be included. The common ways to calculate these averages is by using either the average or median price.
For an example of graphs using average sale price and median sale price of homes in Spokane Washington go to Market Activity.
When the term average is used, it generally refers to the mean average. To come up with a mean average, you total a group of values and divide by the number of values. Applying this to real estate, you would total the value of homes sold in a given time and divide by that number of homes. This gives you a true average. One drawback of using the mean average for monitoring real estate market trends is that a few very high priced homes closing in a given time period can cause the data to spike. Likewise, a high number of distressed home sales (short sales and foreclosures), can cause the data to dip. This is especially true with smaller amounts of data, like in the case of smaller housing markets or when averaging shorter time intervals.
The median average is found by having all the home values in order from least expensive to most expensive. Then you take the value of the home in the middle. That is the median home value. Most of the homes sold are in this median price range therefore when you move up or down a few home values it makes very little effect on your outcome. In other words, a few very high priced homes will not significantly skew the data. This data, when graphed over time, tends to be smoother, without the large peaks and valleys.
Because the median value produces a graph that is a little smoother and less affected by market anomalies, I feel that it is more valuable information when measuring real estate market trends.
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