Everytime I read news articles about the latest home sales stats, it never fails to quote the latest median home price. And as each new data point for the prior month gets released, the median number fluctuates – as it should. Sometimes, the difference from the month prior is not too noticeable and sometimes it changes by the price of two Ferraris.
As I noted in a blog about the lastest November Marin stats, the median price seems to take the life of a roller coaster. Take another look at the median home prices for single family homes as reported in past MarinIJ articles, who get their stats from DataQuick:
Jun 07: $1,125,000
Jul 07: $950,000
Aug 07: $1,000,000
Sep 07: $860,000
Oct 07: $978,000
Nov 07: $920,000
Hot potato, yes? So what does the median mean and how is it calculated?
According to DataQuick, they started collecting information on home sales from public records since 1979 and started reporting the stats in 1989. As they explain on their site, the median home price is, “…the point where half of the homes sold for more and half for less…” It is not the average but just the number at which the house in the middle of all the homes sold for the month sold for. And because it only takes into account those homes that actually sold in the month – it can be awfully misleading, since the $65 million dollar house which sold this month and the $200,000 condo – which I think are outliers – can be added to the line up to determine the middle point. And as the number of home sales slow, the line up gets shorter and shorter. The median does do better than the average in not actually mixing these one-offs into the fold. As the number is reported only for the current specific month, there is a lot of mood swings when you look at it over time.
While these stats are helpful and provide accurate information, I propose that in addition to these data points, a nine, twelve or eighteen month moving average should also be reported to give more context and color to these monthly specific numbers. Altos Reserach, another real estate market research and data information company has great charts that examine a 7 day and 90 day average. In the chart for my hometown of San Anselmo, the 90 day orange line is much smoother than the 7 day average. And in my opinion, a much better representation of the overall trend – not just the one time monthly stats.
So -don’t let the numbers fool you…. How do you interpret what the numbers mean?
Chart: Altos Research
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