What Is the Median Home Price and Why It Doesn’t Matter by Aaron Zapata, Prudential Realtor
There’s much debate over how we should track the housing market and one number that we keep going back to is the median home price. What is the median home price? It’s simple:
The median home price is the point where 50% of the houses sold for more, and 50% sold for less. It’s really a bad way to gauge the real estate housing market and here is an example to show why.
- 50% of the homes sell for more than $500,000
- 50% of the homes sell for less than $500,000
Month 1 median home price = $500,000
- 25% of the homes sell for more than $500,000
- 75% of the homes sell for less than $500,000
Month 2 median home price is going to go down below $500,000 because more homes sold for less than $500,000. It does not mean that the homes over $500,000 came down in value! It just means less of the higher priced homes sold compared to the lower priced homes.
What does that mean?
Let’s look at the logic. How many people in Orange County, CA are truly qualified to buy $600,000 homes vs. those that are qualified to buy $350,000 homes? Obviously, there will be more people qualified to buy lower priced homes. So guess what? We sell more lower priced homes! Anytime we sell more lower priced homes than higher priced homes, the median home price will come down. It doesn’t mean home prices are coming down at all.
Have home prices come down? Yes. Our government has made sure that the lending process is more difficult than ever and that it’s harder to qualify for higher balance loans. Is it impossible to get a loan? No, just more difficult. However, when things are difficult, a lot of people just stay put, not wanting to go through the effort required to get a loan. And, I see people reading news headlines that say prices are falling and because of their ignorance, decide not to buy because they don’t really know what that means. If you’ve made an offer on a $300,000 home in OC lately, you’d know you are up against multiple offers and you have to act quickly!
I hope this post helps you understand why the median price has continued to fall and why it really doesn’t matter. Leave me a comment and let me know what you think.
You can also visit my Facebook page at http://www.facebook.com/atozrealestate and ask me questions there!