Median price skewed due to low-end surge
MarketWatch published an article last week that reveals the danger of statistics…
“If there are a lot more homes sold on the low end and fewer on the high end, the median price is bound to drop dramatically,” NAR Chief Economist Lawrence Yun said. “In normal times, a median price would reflect typical homeowner equity changes, but these are not normal times. The jumbo (mortgage) market is frozen and the buying activity is more concentrated in lower-value homes.”
Statisticians already know statistics can mislead, but it’s easy for journalists and analysts and agents, buyers, and sellers to miss it.
What the article is telling us is that an awful lot more lower priced homes sold, because they have become more affordable to the majority of buyers. But it doesn’t mean prices have dropped, because the median price is the price at which half sold for more and half sold for less. The median is not a perfect gauge of price trends; it’s important to look more closely at the data.
Here’s a simple analogy. One week a statistician visits the local mall at about 10am, and randomly surveys the ages of the people in the mall. He comes up with a median age of 48 – half the people are younger, half older. He returns the next week, at 3pm. This time the median age is 19 – half are younger, half older. You and I know that he probably found few if any teenagers on the first visit, and quite a few the next time.
The mall data can’t be used to show a trend – especially if we use it to suggest the people at the mall are getting younger (impossible) or the mall is now suddenly attracting younger people (unlikely as a trend, but clearly the reason here was the time of the sample).