Weighing Changes in the Median Sales Price
Every time you read an article on home prices, it seems that not only are prices moving at different pace from the previous article but in the opposite direction. An article it today's Sarasota Herald Tribune starts with the headline Home Sale Prices Up 8 Percent. Yet at the end of last month, S&P/Case-Shiller released their monthly indices of home prices and prices were down in 19 of 20 markets including both Florida markets followed (Tampa and Miami) as well as the 2 National composite indices. Admittedly, the Herald Tribune article was talking about Sarasota-Bradenton which is not Tampa or Miami but it is difficult to believe such a ditch could exist between Sarasota-Bradenton and the rest of the country.
In the Herald Tribune article, the price change figures were based on changes in the median price (which was properly and adequately disclosed). However, if you didn't read the article closely enough or think carefully about what the median price meant, it would be easy to assume that the value of your home, for instance, had increased 8% from a year ago. This would be a horribly flawed assumption.
Median Defined
The median is the midpoint of a group of ranked numbers. To get the median selling price for the quarter, you would rank all of the sales prices from high to low and the midpoint of this ranking would be the median. For example, if there were 5 sales as follows: 100k,150k,200k,250k,500k - the median would be 200k. If the last sale was 5,000k rather than 500k the median would still be 200k because it would still be the midpoint. The median is a better measure for things like price because it reflects more closely what most people paid, rather than the average.
The downside of Median Price
The trouble with the using the changes in median price to evaluate changes in the market is that the mix can change from period to period. As I have followed changes in the median price through the My Florida Regional MLS over the past few years, the biggest cause for fluctions in Sarasota seems to be the huge swats of foreclosure sales in the south part of the county (around Port Charolotte). I am far from being considered an expert in the Port Charlotte market but every quarter dozens of what appear to be fairly new homes sell for under $100,000 as bank owned homes.
In the first quarter of 2010, home sales in that Port Charlotte zip code (34286) accounted for 5.9% of all Sarasota-Bradenton sales. In the first quarter of 2009, they accounted for 6.6%. The relative decrease in the mix of these lower priced sales was enough to push up the median price 8%.
To really see the affect mix can have on the median price, just drill down to the zip code level. If you look at areas like downtown Sarasota or Longboat Key, areas where the mix can really play havoc with the median price (think on beach vs off beach mix, comparatively few sales, etc), you get really wild swings. On Longboat, the median single family sale price was $617,500 in the first quater of 2009. For the first quater of 2010, the median sale price was $812,500. If you sold your Longboat Key home during the first quater of last year, don't go jump off of a bridge thinking you missed a 33% price move. This change in the median price was caused substantially by a change in mix - more larger waterfront homes selling at great prices this year compared to smaller off water homes selling the previous year.