The Myth of Median Home Prices

Median home prices are something you’ll hear about over and over again when you’re home shopping. Your Realtor may tell you about median home prices, and use it as a way to compare potential houses in your marketplace. Unfortunately, median home prices aren’t the ultimate evaluator of homes in your area. Educate yourself about the myth of median home prices.  

What is a median home price?

The median home price is the midpoint for home prices in your area. It’s not the average, which is a common misconception. It’s the middle number in a range. Consider this example:

1, 10, 12

The median in this set is 10, because it’s the number in the middle of the set. The average, on the other hand, would be 7.66, which is the sum of the numbers divided by the number of numbers.

A median can be a completely arbitrary number, if you have a broad range or a range that’s skewed in one direction. For example, you could have the following set:

1, 2, 3, 20, 25

And the median is 3. The average in the above example would be 10.2. Neither number accurately reflects the range of numbers, the average value or the range in which the majority of the numbers occur.

What a median home price can’t indicate.

As you see, a median home price doesn’t give you an average home value. It can’t tell you how much homes in your neighborhood typically sell for, if there’s a broad range. It can’t tell you if the home you’re considering is in the right price point for the area. Many people misuse the median home price, and don’t understand what the data actually means. Medians can’t tell you how many bedrooms a home has, or what the average square footage of a home is. It’s a misleading and often misused number. Even real estate agents sometimes get this wrong, mistaking median for average or otherwise manipulating the numbers.

What a median home price can indicate.

The one thing a median home price can do is give you a basis for comparison with other medians. For example, if you’re looking at a home in an area in which the median home price is $200,000, and another area you’re considering has a median of $700,000, you know there’s a general disparity in home prices.

You can also compare today’s median home value in a neighborhood with the median home value X years ago to get a sense for which direction the home values are moving. For example, if the median today is $200,000, but the median 10 years ago was $150,000, you know that the median now is higher and home prices have probably gone up in general.

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Steve SchraderBachar is a local mortgage planning expert who resides in Iowa and provides service to the clients of his mortgage planning practice across the Midwest.  You can reach Steve at 1-515-289-4381 or 515-360-5197.