Median Home Prices
Douglas M. McCoy at the Indiana Business Review writes about the outlook for real estate and housing in 2016 and mentions median home prices. ”The single-family housing sector found its way back to stable growth in 2015, while the multi-family housing sector continued its strong run. Consumer confidence, job growth and low interest rates are the primary drivers that bring potential homebuyers to the housing market. Considering these factors, along with an important projected increase in new single-family inventory, the single-family housing market is forecasted to continue on a positive path in 2016.
“For example, the National Association of Realtors forecasts that existing home sales will increase 3.5 percent from 2015 levels, and new single-family home sales will increase 29.3 percent nationally (see Table 1). Housing starts are projected to increase 17.2 percent, with single-family units increasing 23.2 percent and multi-family units up 6.5 percent. Median home prices for both existing and new homes are expected to increase 4.1 percent.” The outlook for 2016 looks bright.
What is the definition of Median home prices and how does it differ from average home prices?
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.
- $100,000
- $101,000
- $102,000
- $103,000
- $104,000
- $105,000
- $106,000
- $107,000
- $650,000
- $1,000,000
- $3,000,000
The median price of these 11 homes is $105,000. Five homes were lower priced and five homes were higher priced. The median, really is the middle value. 50% of values are above it, and 50% below it. So when the data is not symmetrical, this is the form of ‘average’ that 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.
What difference does it make? Suppose you have a fine French chair you brought back from your trip to Europe. It is 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 South Florida 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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