Thursday, January 24, 2008

Real Estate Statistics in the Media

There's an old saying in statistics: "torture the numbers long enough and they'll tell you whatever you want to hear." One of my pet peeves is when statistics are thrown around in the media without any reference points, framing, or explanation – they're virtually meaningless. Yet almost everybody I come in contact with wants to talk about a particular number they heard or read recently.

Let's take a look at some of the tricks statistics can play.

Lesson 1


Median Home Prices


Median is a statistical term which literally means "the middle one", as in, if you have a list of 5 numbers (sorted in order), the 3rd number will be the median.


  1. $100,000

  2. $150,000

  3. $200,000

  4. $250,000

  5. $300,000


In the list above, the median is $200,000. (the middle number.)

So how can the median be misleading, or misunderstood, without additional reference information? Let's look at another example.

Suppose you hear on the news that the median home price has dropped from $275,000 to $250,000 since last year. What does that mean?

Let's assume these are the sales from last year, which were used to compute the $275,000 median:

  1. $195,000

  2. $220,000

  3. $250,000

  4. $270,000

  5. $275,000

  6. $350,000

  7. $425,000

  8. $450,000

  9. $550,000


Do we know any more now than we did before about the drop to $250,000? Not really.

Now let's look at 2 different possible scenarios which both produce a median of $250,000.
























































Last YearAll Prices DropBig Homes don't Sell
$195,000

$185,000



$190,000


$220,000

$210,000



$195,000


$250,000

$225,000



$215,000


$270,000

$240,000



$235,000


$275,000

$250,000



$250,000


$350,000

$310,000



$260,000


$425,000

$390,000



$275,000


$450,000

$405,000



$279,000


$550,000

$499,000



$299,000


   

So what happened this year? Did prices drop in a uniform fashion across the board? Or did the market for homes priced above $300,000 completely dry up? Those are two very different possibilities, but they both return the exact same Median Home Price.

That's why, when you hear a quote about Median Home Prices on MSNBC, KFNN, AZCentral.com, or Channel 12 News, you need to ask yourself what that really means. Chances are you won't get the whole story surrounding that statistic – the numbers just don't sound as exciting with all the boring details to support them!

That's also why, whenever I do a market analysis, I try to explain what the numbers mean, rather than merely quoting some numbers for you to wonder about on your own.

I hope this helps you understand a little bit more about the term Median Home Prices.

Your statistical analyst Realtor,

Chris Butterworth

[tags] median home price, real estate statistics, Fletcher Heights [/tags]