Analyzing Home Prices? Median Is Not Your Everyday Average

The median, its not just something you cross to make an illegal u-turn.

Trying to determine the trends in home prices can be very confusing. Mainly because a lot of data exists such as “pending home sales”, “price per square foot”, “this month versus the previous month”, “this month versus this time last year”, and the big one which can be misleading and confusing….do you look at average or median prices? Well my point here is going to be to try to make a case for “median home price”.

Graphed below are the Single Family Residential Home Sales is South Pasadena for March 2010 and March 2011. In 2010 there were 8 units sold compared to 2011, in which 7 were sold. Notice how the sales numbers correspond closely for the two years when comparing the first 7 units which were sold. There was an additional unit sold in 2010 and it was dramatically higher priced ($1,900,000) than most of the other units for the two year period.

Reporting the Numbers

I’ve seen market recaps from other real estate agents who insist on reporting averages. To me it just doesn’t make sense because a couple of home sales can really distort the data and give a better or worse scenario. What if the sale in 2010 would have been $5 million instead of the $1.9 million, think how working that number into an average would have blown the summary completely out of proportion.

In which of the two scenarios below do you think presents a more accurate picture of what is happening in the South Pasadena real estate market last month:

The average price of a single family home in South Pasadena fell to $928,500 compared to an average price in March ’10 of $1,059,750, a decline of 12%— OR– the median price of a single family home in South Pasadena this month was $890,000 compared to $926,500 in March ’10, a decline of 4%.

Median by far is the best tool for giving you a snapshot of what is happening in the housing market because half of the homes sold will be lower priced and the other half will be higher priced.