Miscellaneous

Median Sales Price - the most important metric

I don’t have a chart for today; instead I wanted to talk about the types of charts I usually publish and the various metrics they measure. Long-time readers have seen lots of different measurements:

  • Highest priced homes

  • Lowest priced homes

  • Price per Square Foot

  • Number of Days on Market

  • Sales Volume (Number of Homes Sold)

  • Sales by Pricing Bands (ie: $100,000 - $200,000, etc.)

  • Sales (or Pricing) by Amenities (ie: homes with swimming pools, etc.)

Each of these measurements has a role in your toolbox of understanding the marketplace and comparing one area with another. But if I had to choose one metric as the most important, I wouldn’t hesitate:

Median Sales Price

Median Sales Price is the most accurate (fair, true, realistic) way to compare one area with another, or one area to itself over time. It doesn’t allow for a small percentage of the area to distort the overall number, the way Average does (also called Mean).

Median, by definition: Median is the middle number in a list of sequential numbers. As Median Sales Price, it is the price at which half of the homes are more expensive and half are less expensive.

If you think about it logically, the price you are willing (and able) to pay for a house shows exactly how desirable that house is when compared with all the other homes you have to choose from.

You might not be willing to pay $200,000 for a 2,000 square foot home in El Mirage; the home and/or area isn’t desirable enough for you to write that check.

Most of us would be willing, but not able, to pay $2,000,000 for a 2,000 square foot home on Camelback Mountain; the area is that much more desirable than most of the rest of the Valley. (And even though you might not be able to buy that house, someone else probably will..!)

When you take the end result of all these “willing and able” purchase decisions and line them up, the median sales price is a pretty good indication of the overall desirableness of the area, whether compared to another area or compared to itself over time.

The median sales price actually incorporates all the other metrics described above:

  • Larger homes usually cost more money which raises the median sales price.

  • Fewer days on the market means buyers are acting quickly to beat out other buyers, which means they’re getting fewer discounts (or even paying premium prices), which raises the median sales price.

  • Homes with swimming pools generally sell for more money, so more of these homes in an area probably means a higher median sales price.

What does this mean for Simple MLS Charts? 2 things, really.

1.) This is the reason why the majority of my charts compare median sales prices. But I’ll also look at other metrics throughout the course of the month, because as Realtors we do care about things like Days on Market and Price per Square Foot.

2.) I’d like to explore in more detail how these metrics are inter-related with each other, and how/why Median Sales Price encompasses them all. Look for a short article like this once in awhile over the coming months…

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- Chris Butterworth

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Simple MLS Charts is supported by readers like you. If you find these charts useful, please consider becoming a patron with a small monthly pledge on Patreon.

* All chart data represents single-family detached homes only. Information is believed accurate but not guaranteed.

 

What the Statistics Say - and don’t say

We look at a lot of charts and market statistics around here - 3 times per week on most weeks, and for the most part it’s pretty easy to see whatever it is the chart is trying to tell us (prices have increased, sales volume has been brisk, one city is more expensive than another city, etc.)

But not every statistic is as valuable, or as honest, as what it’s portrayed to be. This is especially true with headline stats in the media and the big news websites. Today let’s take a minute and talk about how statistics can be used, and abused.

Here are 4 ways statistics can be misleading:

1.) the Percentage vs the Number

When you hear a report on the local news about a bacteria infection that’s very dangerous, and they tell you that deaths from this bacteria are up 67% across the county this year… Holy crap - that sounds scary as hell. What are we going to do to stay safe?!

What they fail to mention in the report is that last year 3 people died, and this year 5 people have died. Well, that isn’t quite as bad. 5 people, out of the 400,000,000 that live in our country? Now I like my chances. I have better odds of winning the lottery than catching that bacteria.

Don’t fall for a percentage without knowing the real story, as percentages can be manipulated.

2.) Longer Trends paint a more accurate picture

If I show you the median price of this month compared to this month last year, we may or may not get an accurate representation of the trend. Either month could have been higher, or lower, than normal, which would cause the numbers to be out of balance compared to what is really going on in the marketplace.

This is why I like to show a particular month over several years’ time, or the median price for a quarter, or year-to-date. These longer time periods give you a much better representation of the actual market’s trends.

Beware a statistic or a chart without many reference points.

3.) Do the Statistics match their use?

I had a telemarketer call me yesterday. He told me that NAR is reporting sales volume is down, and asked if I needed his help with marketing?

I asked him if he was looking at national numbers (NAR), or Phoenix-specific numbers, as we haven’t seen a downturn in volume yet. Unless he’s talking about volume this month compared with volume from the summer - because the real estate business is seasonal and volume always goes up in the spring/summer and then down again in the fall/winter.

He couldn’t wait to hang up on me. :-)

Be careful about making decisions based on statistics that don’t pertain to your situation.

4.) Using past Trends/Statistics to predict the future

The real estate market, like the economy as a whole, tends to get along just fine, month after month, until it doesn’t. Sometimes you can see a market change coming; sometimes you can’t.

Stocks can move higher in a bull market run for several years, before suddenly dropping. Then, out of nowhere, we start hearing about a recession on every channel and website.

The same thing can happen with real estate: prices move higher for several years in a row, then over a couple months’ time the Days on Market number starts rising, before sellers have to start reducing their asking prices in order to attract an offer.

We don’t always know when or why, or how long, or how severe any correction will be. But we do know prices don’t go up in a strait line indefinitely.

Be careful making predictions about the future based on what the past statistics and trends have shown.

Bottom Line

I think charts and statistics are incredibly valuable information, but they can also be manipulated if you don’t know what to look for.

Hopefully my Simple MLS Charts give you the right amount of stats, trends, context, and information to be both honest and useful. That’s the goal at least…

- Chris Butterworth

 

What else can I do for you?

Learn about my full-featured  eNewsletter service .

Learn about my full-featured eNewsletter service.

Read my blog  about using email and building a tribe.

Read my blog about using email and building a tribe.

 
 

Simple MLS Charts is supported by readers like you. If you find these charts useful, please consider becoming a patron with a small monthly pledge on Patreon.

* All chart data represents single-family detached homes only. Information is believed accurate but not guaranteed.

 

USA Mortgage Rate History

I thought I'd take a look at something more national in scope for Independence Day today, so I pulled the 30-Year Fixed Rate Mortgage interest rate history, by month, going back to 1971, from the Freddie Mac website.

The economics websites keep telling us interest rates are ticking upward and that the Fed is in a rate-hiking cycle, but overall we're sitting in a pretty good interest rate environment. At least compared with the last 47 years...

Happy 4th of July Everybody!

- Chris Butterworth

 

What else can I do for you?

Learn about my full-featured  eNewsletter service .

Learn about my full-featured eNewsletter service.

Read my blog  about using email and building a tribe.

Read my blog about using email and building a tribe.

 
 

Simple MLS Charts is supported by readers like you. If you find these charts useful, please consider becoming a patron with a small monthly pledge on Patreon.

* All chart data represents single-family detached homes only. Information is believed accurate but not guaranteed.

 

Average vs Median: What's the difference?

Real Estate Statistics are everywhere - TV, radio, the news, ARMLS reports and CMAs, websites.. And they seem to use the terms Average, Mean, and Median at random.

Today we'll take a quick look at the differences between the terms, what each one is trying to tell you, and whether or not it even matters which one you use. I'm going to focus on their use in real estate statistics, such as "median sales price" and "average number of days on market", etc.

 

defining the terms

Average

The Average of a set of numbers is the total (sum) of all the items' values added together, divided by the number of items. For example, if 3 homes sold for $100,000, $150,000, and $350,000, the Average would be $200,000, because the total (sum) is $600,000, and we would divide that by 3.

Median

The Median of a set of numbers is that number where half of all the numbers are lower and half of all the numbers are higher - it's the very middle number. In the same example, if 3 homes sold for $100,000, $150,000, and $350,000, the Median would be $150,000; it's the middle number where half sold for less and half sold for more.

Mean

The Mean is just a synonym for Average; they "mean" the exact same thing.

 

Simple Chart Examples

Chart 1 below shows an over-simplified neighborhood, where 5 homes have sold recently. 4 of the 5 ranged from $100,000 to $175,000, but the 5th home was significantly more expensive at $850,000.

Chart 1 - an over-simplified neighborhood where one really expensive sale has a significant effect on the average compared with the median.

The Median Sold Price is the same as the middle sale: $150,000. But the Average Sold Price is closer to $300,000, due to that one high-priced home.

Why does this matter?

Suppose you had clients looking for an entry-level home in a nice neighborhood, and you told them prices in this neighborhood averaged about $300k - they would probably scratch this area off their list as too expensive, even though most of the homes are within their price range.

But what happens when you tell them the neighborhood's median price is $150k? You're probably showing them homes that afternoon!

 

Chart 2 shows the same concept, but with more homes selling in a more realistic pricing pattern:

Chart 2 shows a more realistic neighborhood. The more expensive homes have a larger impact on the average than the median sales price.

Once again the more expensive homes at the top of the neighborhood are pulling the average up above the median. It's not as drastic as the first example, but it still makes a difference.

The median price is not impacted by the dollar amount of the expensive sales; it simply acknowledges these sales as part of the more expensive half. The average price includes the dollar amounts into its calculation, so it can be raised or lowered based on how many high-end sales, and how expensive those sales are.

The Average Price of $169,190 is only comparable to a few actual prices; most homes sold for either a lot less or a lot more than the average price. But the Median Price of $143,000 is similar to the majority of the homes' sold prices; only the few homes at the ends of the spectrum are significantly different from the median price.

 

In Conclusion

I'll use Average in my charts from time to time, but I rely on Median as a more accurate measurement of what is really going on in a particular neighborhood / zip code / city, because it's based on the overall makeup of that particular area and cannot be influenced by one or two luxury sales.

- Chris Butterworth

 

What else can I do for you?

Learn about my full-featured  eNewsletter service .

Learn about my full-featured eNewsletter service.

Read my blog  about using email and building a tribe.

Read my blog about using email and building a tribe.

 
 

Simple MLS Charts is supported by readers like you. If you find these charts useful, please consider becoming a patron with a small monthly pledge on Patreon.

* All chart data represents single-family detached homes only. Information is believed accurate but not guaranteed.

 

Why I make Simple MLS Charts

I make Simple MLS Charts because the data should be easy to understand.

The chart below is how Arizona Regional Multiple Listing Service (ARMLS) sums up the monthly sales activity over the last 10 years:

Ouch. That chart hurts my eyes. And it gives me a headache.

Here is a chart I published last month, using almost the exact same data set:

Much easier to understand, right?

It's nice when you can see the trend, over time or for a particular year, without having to get out your old decoder ring (or crayola box) to figure out which color is which!

There have been almost 1.5 million homes sold in Maricopa County so far this century. That's a lot of sales, which we can then analyze in hundreds of ways, coming up with thousands of stats, factoids, and sound bites - in as much nitty-gritty detail as you could ever imagine.

I vote for keeping it simple.

- Chris Butterworth


* Numbers represent single-family detached homes only. Information is believed to be accurate but not guaranteed.

 

Simple MLS Charts is supported by readers like you. If you find these charts useful, please consider becoming a patron with a small monthly pledge on Patreon.

 

What else can I do for you?

Learn about my full-featured  eNewsletter service.

Learn about my full-featured eNewsletter service.

Ready my blog  about using email and building a tribe.

Ready my blog about using email and building a tribe.