I have had a few people ask me which stats I prefer to use, average price or median price, so here is some information on how I use both, and what the limitations of each can be.
First, the most common stat that most people use is the average price. Almost always they are referring to the average sale price unless otherwise noted, because if you are in a strong buyer’s or strong seller’s market, the list price probably isn’t very reflective of what the final sold price will be. For instance, right now we are in a strong seller’s market, so often the list price is lower (and can be much lower) than the actual sale price, and we want to measure how much people are actually spending on houses.
Average sales price is basically the sum of all of the sales over a period of time, divided by the total number of sales in that same period. It is a very good indicator of what is happening and is very easy to understand and to calculate. If you are looking at a particular area or neighbourhood, you can do it yourself in only a few seconds, but it has some limitations.
The median price is a little more difficult to measure when you are looking at a large number of homes. To get the median sale price, you take all of the sales prices, listed from highest to lowest, and choose the price that is in the middle of the list. If there are an even number, then the median price is the average of the 2 middle prices. For example, if you have these 5 sales: $325,000, $310,000, $307,500, $292,000, $275,900, then the median price is $307,500.
The average price in a given month, or neighbourhood can easily be skewed. If, for example, in month 1 you have the above 5 sales, you end up with an average sale price of $302,800 and a median price of $307, 500, then you can be pretty confident that the average price is not very skewed by outlier sales. But let’s say that in month 2, there are very similar sales, but one house is a beautiful lakefront property that sells for $1,000,000 and 5 others sell for the same as the above example. You have 6 houses sold in that month, with an average sale price of $418, 400 but the median price is $308,750. This to me shows that the data is highly skewed because of an outlier. When looking at home sales for a wide area, over a long enough period of time (like a whole city for one month) it is unlikely that the data will be skewed much from one month to the next unless something strange happens. For example, you don’t often see that there are 5 huge houses sell one month and none the next, but you could, which is why I think it is important to look at both stats to make sure that your data isn’t skewed.
So that should help you understand how these stats are used. Obviously you can go a lot deeper into the stats but this gives you a good idea when reading my other posts as to why I prefer to use both.
If you have any questions, feel free to contact me!