In almost every real estate article about conditions in any area of the country two words pop up: average and median. Case in point, ATTOM Data Solutions, curator of the nation’s premier property database, today released its Q1 2018 U.S. Home Sales Report, which shows that median home prices in 57 of 105 metropolitan statistical areas analyzed in the report (54 percent) were above their pre-recession home price peaks in the first quarter.
Nationwide the median home price of $240,000 in Q1 2018 was less than 1 percent below its pre-recession peak of $241,500 in Q3 2005, but still up 9.1 percent from a year ago. Metro areas with Q1 2018 median home prices the furthest above their pre-recession peaks were Houston, Texas (69 percent above); Dallas-Fort Worth, Texas (67 percent above); Denver, Colorado (62 percent above); San Jose, California (60 percent above); and San Antonio, Texas (57 percent above).
Average and median are best explained by a six-foot man drowning in a pool averaging five and a half foot pool. Judy Hedding at About.com wrote an article explaining the difference. First, let’s show how the median price is arrived at:
Here are 11 fictional home prices.
The median price of these 11 homes is $105,000. Five homes came in with lower prices, and five homes came in with higher prices. The median really is the middle value. 50% of values are above it, and 50% below it. When the data is not symmetrical, this is the form of ‘average’ gives a better idea of any general tendency in the data.
The average price of these 11 homes is $498,000. That’s what you get if you add up all those prices and divide by 11.
Suppose you have a fine French chair you brought back from your trip to Europe, a memento of the time you spent there celebrating your wedding anniversary. A friend comes over and asks if this chair will support her. She weighs 250 pounds. Oh yes, you say it will support the average weight of 498 pounds. She sits, and your fine memento collapses into fragments. You meant to say it will support the median weight of 105 pounds.
Knowing how average and median are arrived at gives you information you can act on. Suppose you are looking for a house and your realtor says, “The average price of a house in the Ft Wayne area is $498,000.” You might get discouraged if you are looking for a house priced at $105,000 and say to your spouse, “Honey, we can’t afford to live here. The average house is way above what we can afford.”
However, if your realtor says, “The average price of a house here is $498,000, but the median house is priced at $105,000.” You could take heart that you will find something in your price range, for of all the houses on the market right now, 50% are priced at $105,000 or lower
Both averages looked at over time, will give you information about the state of the real estate market nationally and locally, but understanding average and median, when referring to housing prices, gives you enough information to make you a happy first time home buyer.
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