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…
- Chris Butterworth
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