Tracking the Bust and the Misconception of ‘MEDIAN’
This week Jonathon Lansner did his recap of the Dataquick report on the Orange County real estate market. Where are we today? And what does it really mean?
The Median Sale Price as reported by Dataquick for a home in the OC was $400,000 – which brings us back to May of 2003 if you’re tracking the bust backwards. Lansner states, “That means that 53% of the 1996 to 2007 profit has evaporated.”
I found some other interesting tidbits on the DQNews site to report:
- 44.2% of sales in Orange County in the month of November were foreclosures.
- Sales volume is up 38.9% in November ‘08 as compared to November ‘07 numbers.
- Median sales price is down 31.4% from the median sales price in November ‘07.
I want to draw your attention to one common misconception. Take yourself back to your statistics class (come on now – don’t kick and scream like that – it will be a brief visit, I promise). Remember the definition of median. Dictionary.com defines ‘Median’ as “the middle number in a given sequence of numbers”.
Look at the above statistic and look at it with that definition now applied. Median is not the average. It just means that if there are 5 sales – the price of the number 3 sale is the median home price.
You cannot draw the conclusion that prices have all fallen 31.4% when comparing November ‘07 and ‘08 median home price figures. Remember that 44.2% of the sales in November were foreclosures. Much of the movement in our market is in the lower price points and in the most distressed price points – hence a lower median price.
Median home price is still a valuable indicator in the market but you must be careful of the conclusion you draw from the information. There is no denying prices have fallen precipitously. But, I do think it’s important to evaluate the numbers in the right context.
Okay – statistics class dismissed.
About the Author | Linsey Planeta
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Linsey Planeta
Linsey,
Just a thought on the median home price thing. I think it actually does mean that the median house price is dropping. The house was sold, and if there had been enough money out there that someone could afford to pay a higher price, they would have. Short sales and foreclosures are a bid process, per my understanding.
So while the inventory may have been distressed, it still is an accurate reflection of what people are willing to pay now that we know how hyper inflated all the housing prices were.
You’re correct he median home price is dropping. I certainly don’t disagree. I also agree that actual home prices have dropped tremendously. No question about it.
The distinction I’m drawing is the what is selling is the most distressed sector of the market People are buying what they perceive as a ‘good deal’, thus that middle number will be much lower.
It does not mean that every home has fallen 31% in value. The median number has fallen that much – but if you look at sale prices in some of the other sectors of the market, particularly the sale prices that are in some of the less distressed sectors, the fall has not been as steep as the median would indicate – not to say at all that there still is not a significant decline.
Conversely, in some of the hardest hit sectors of the market, the prices have fallen even more than the drop in median sales price since the peak. Some areas have seen as high as a 50%+ fall off peak pricing.
I just think it’s important not to forget what ‘median’ implies and to examine the numbers in that context.
Thanks for reading Peyton. Happy Holidays to you guys!