Statistics don’t tell the whole story behind real estate, but they are vital to understanding market reports and articles about local real estate. Without statistics, we would all be at the mercy of guesswork. So let’s take a look at the difference between median and average because these two terms are used often and often mistakenly interchanged.
Remember that math class so very long ago when you learned about different types of averages?
For a refresher, there were three types that we all learned:
MEAN: (or what we commonly call AVERAGE): Add up all the values and divide by the number of items.
MEDIAN: Arrange all the values in either ascending or descending order and select the one that is exactly in the middle.
MODE: This is the most frequently occuring value in the range of numbers.
All three types of averages can be useful, depending on the situation. But in real estate, medians often give a better picture of what is actually going on. One closed sale at $900,000, for example, can really distort a mainly $200,000 housing market, showing a much higher number than really occurred.
Here’s an example. Listed below are all the properties that closed in South Windsor CT during November 2010:
- 35-F13 Main Street $ 15,000
- 1571 Ellington Road $151,000
- 191 Woodland Drive $220,000
- 394 Abbe Road $228,000
- 36 Peach Tree Lane $233,000
- 135 Pierce Road $237,000
- 42 Case Hill Circle $273,900
- 86 Jacques Lane $290,000
- 85 Bourbon Street $323,000
- 142 Scott Drive $325,000
- 12 Clover Drive $430,000
- 27 Castlewood Drive $450,000
- 1139 Main Street $475,000
- 55 Frazier Fir Road $587,500
If we took the average price, it would be $302,742.
But if we took the median price, it would be $281,950. That’s quite a difference. And most of the time, the median price will reflect a more accurate picture of what is going on in the market.
Another statistic to be wary of is Days On the Market. Most of the time, the average DOM is reported, but again that might not show what is really going on. One stubborn over-priced house that has been on the market for 365 days will skew all the other data. It may be worthwhile to look at median DOM. In the South Windsor houses shown above, the average days on the market was 109, mainly because one house was on the market for 382 days. The median, however, was 66 days which is a more accurate picture of the South Windsor housing market.
But what does the median price really tell us? If the median price goes up over the last month, does it necessarily mean that home values have gone up? Not necessarily.
For example, during the craze caused by the first-time homebuyer tax credit. many homes were sold in the lower price ranges because that is what first-time homebuyers could afford. So it would appear that median prices went down when, in fact, it was just that more people bought lower-priced homes. A few months later, when the housing market was slower and the first-time homebuyer tax credit had expired, higher-priced homes sold because the buyers were mid-career employees who felt secure in their jobs and could afford higher-priced homes. In this case, median prices were higher, but it doesn’t necessarily mean that home values are increasing.
So we must remember that median price refers to what has sold rather than whether home values increased or decreased. We would have to look at other information to determine that.
If you have questions about what the market is doing in your neighborhood or town, please contact me.
Peggy Chirico, REALTOR®
Serving the Greater Hartford Area
Prudential Connecticut Realty
peggychirico@gmail.com
If you are buying or selling a home in Hartford County or Tolland County, please call me at 860-748-8900, email me, or use the Contact Request Form. I would be happy to help you with your home search or answer any of your real estate questions.
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