Median Problems

Submitted by Rich Toscano on September 13, 2006 - 8:44pm

Now that this month's housing data has arrived, I thought it would be a good time to briefly review the trouble with the "median price" as a measure of real estate pricing power.

Many observers, noting that the median home sale price was 2.2 percent lower in August 2006 than in August 2005, would assume that the typical home is now worth 2.2 percent less than it was a year ago. But this assumption is not necessarily correct. Because while the median price is a decent measure of how much the typical buyer paid, it does not tell us what that typical buyer got for the money.

When it comes to measuring actual changes in home market values, the median price can be thrown off by the following:


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Submitted by deb on September 13, 2006 - 10:01pm.

When only one in about 7 homes are selling monthly, as opposed to about 1 in 1 at the peak (as is the case in the San Fernando Valley where I am), you can bet the buyers are getting more for their money. They spend the same amount, but only the best listings sell. The crap just sits.

Submitted by Asterix on September 14, 2006 - 9:22am.

There must be better metrics for judging a real estate market. For example, rather than reporting the median sales price, what about reporting the average or median price per square ft. That would factor in the size of the property as well as the price. Another possibility would be to report the estimated monthly payment divided by the square footage. This would factor in the interest rate as well as the sales price and property size to reflect the true cost of ownership.

BTW, I might be able to find out what kind of additional data is available at Dataquick. (I have a contact)


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