Do you really know what words like average and median mean? Take for example this news story on May 3rd in Los Feliz Ledger. “Southern California real estate sales in February 2018 were down 0.5% from January and up 0.6% from February of the previous year to a total of 15,189 homes or condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernadino, and Orange counties combined, according to data from Core Logic, a real estate analysis firm out of La Jolla, CA.
The median price paid for Southern California homes in February was $506,750, up about 2% from January and about 10% from last February.
According to Los Feliz Ledger, “Southern California home prices have “been rising on a year-over-year basis each month for almost six years. The ongoing mismatch between housing supply and demand suggests continued upward pressure on prices, but if mortgage rates keep edging higher some of that pressure would be relieved as more buyers are priced out of the market.”
What Words Like Average and Median Mean
Average and median are best explained by a six-foot man drowning in a pool averaging five and a half feet. Judy Hedding at About.com wrote an article explaining the difference. First, let’s show how the median price is arrived at:
Here are 11 fictional home prices.
- $100,000
- $101,000
- $102,000
- $103,000
- $104,000
- $105,000
- $106,000
- $107,000
- $650,000
- $1,000,000
- $3,000,000
The median price of these 11 homes is $105,000. Five homes were lower priced, and five homes were higher priced. The median really is the middle value. 50% of values are above it, and 50% below it. When the data is not symmetrical, this is the form of ‘average’ gives a better idea of any general tendency in the data.
The average price of these 11 homes is $498,000. That’s what you get if you add up all those prices and divide by 11.
What difference does it make?
Suppose you have a fine French chair you brought back from your trip to Europe. It is a memento of the time you spent there celebrating your wedding anniversary. A friend comes over and asks if this chair will support her. She weighs 250 pounds. Oh yes, you say it will support the average weight of 498 pounds. She sits, and your fine memento collapses into fragments. You meant to say it will support the median weight of 105 pounds.
Knowing how average and median are arrived at gives you information you can act on. Suppose you are looking for a house and your realtor says, “The average price of a house in the Los Angeles area is $498,000.” You might get discouraged if you are looking for a house priced at $105,000 and say to your spouse, “Honey, we can’t afford to live here. The average house is way above what we can afford.”
However, if your realtor says, “The average price of a house here is $498,000, but the median house is priced at $105,000.” You could take heart that you will find something in your price range, for of all the houses on the market right now, 50% are priced at $105,000 or lower
Both averages looked at over time, will give you information about the state of the real estate market nationally and locally, but understanding average and median, when referring to housing prices, gives you enough information to make you a happy first time home buyer.
