Maybe you saw the headline in today’s Victoria Times Colonist that said ‘November real estate sales hit nine-year low’. Every month the local paper dutifully includes an article discussing the Victoria Real Estate Board’s (VREB) most recent monthly statistical report. (By the way, the chart to the left does not depict the Victoria real estate market.)
These monthly reports inevitably refer to average prices and something called ‘median’ prices. Everyone understands ‘average’. The same cannot be said about ‘median’. And so, it can be confusing to see that while the average price of single family homes were about $40,000 less in November than October, the ‘median’ price of the same homes actually was up about $5,000! What is that all about?
Here’s how a median value is arrived at.
Let’s say 101 homes sold in the month. To get the median selling price of those homes, the first step is to arrange the sales in order, from lowest to highest selling price. You should end up with a list numbered from #1 to #101, with a selling price for each number in the list. Now, find the midpoint in the list. In this case, that’s #51 – it’s the exact midpoint of the series. The median selling price is the selling price for home #51. Period – no further calculations are necessary!
OK, I hear you thinking – what if the list doesn’t have a mid-point – that it, what if there was an even number of homes sold, say 100. In that case, you divide the list into two equal parts, take the highest number from the first part and the lowest number from the second, and take the average of the selling prices corresponding to those two numbers. In the case of 100 homes sold, you would take the average selling price for homes #50 and #51.
Now I hear you ask – ‘so what?’ Why not just stick with average values instead of messing around with median values? It’s a very good question.
If all of the homes sold are more or less tightly grouped, price wise, then average values would be a good indicator of the market. But if the selling price of one or more of the homes is extremely high (or extremely low) in comparison with the rest, that will significantly affect the average. The result – the average is no longer truly representative of the market, at least in a meaningful way. For ‘average’ to be useful, you need more information about it’s component parts.
On the other hand, median values are far less affected by an ’out of whack’ selling price, and therefore, of more potential use for making month to month comparisons. The chart to the right illustrates what I mean. It uses three months of average and median prices for used condos in Victoria. As you can see, the median values over the three months varies very little ($270,000,$268,000 and $265,000), while the average values for the same three months demonstrated much larger swings.
That’s why I prefer using median values to discuss the market. Median prices may not reveal the value of any particular home, but it is about the best barometer I know of to begin to get any meaningful understanding of changing trends in the market.
Bye for now,
...Victoria's blogging real estate professional.
Tags: Median property values, Victoria Property Values, Victoria Real Estate
[...] and as a three month rolling average (For a discussion of median prices, see my earlier articvle – Median Home Values Explained). Second, average prices are charted, both monthly and for three month rolling averages. And the [...]
[...] well as a three month rolling average. Chart 5 shows median selling price (see my earlier article – Median Home Values Explained if you aren’t familiar with median price). Chart 6 depicts average prices. And finally, Chart [...]
[...] If you’ve seen any of my earlier Reports, you will know why I prefer median values to averages. But just in case you are new here, please check Median Home Values Explained. [...]