What Matters Most: Median or Average?

In real estate data, we often talk about the median and the average – especially:

Home Prices

Days on Market

But which one matters most?  And frankly, what the heck do they mean?

Harken back to Mr. Allen’s middle school math class.  “The average is easy to figure, but darned if I can remember median!!”

While we’re at it, if you’re fancy:  average = “arithmetic mean” per Google. I think that’s a metric. Heck, it’s been 30+ years, let’s just talk about how they apply to real estate!

Average = sum of the numbers divided by how many numbers you have summed.  

Average or Median PRICE 

Six houses sold in April for $300,000, 3 sold for $350,000, and 1 house sold for $1,000,000.  The average price then was $3,850,000 total/10 houses = $390,000

Median = midpoint of the set of numbers

The same 10 houses sold for the same price. The midpoint then is the 5th house.  The median price in April was $300,000.  

I’m sure both average and median have their place in real estate, but right now, we’re placing more weight on the MEDIAN because the AVERAGE tends to skew the real picture of the market.

Using the example above, which do you think is more accurate: 

Certainly, $300,000 is the most common data point, and it’s also closer to the price of 9 out of 10 homes than the one BIG house that skewed the average.

Because there is a wide range of occupations in the Triangle, and thus wide house budgets, lots of people may be interested in drooling over the $1,000,000 homes, but what affects them financially is the majority of homes.  

Further, if you’re REALLY into the news and how it affects us – the median income is frequently reported in the news.  So when we wonder “Is the Triangle Affordable?”, we decide this based on 2 questions/answers:

*If the median price of a home in  City A is affordable by the median income of that city, the housing is affordable.

*If your housing cost is < 28% of income, and total debt payments are < 36% of income, then your house is affordable to you. These are the standard %’s used by mortgage lenders. 

Average or Median DAYS ON MARKET

The same 10 houses sold, as follows:

3 of the $300,000 homes, and 2 of the $350,000 homes, hit the market on a Friday and sold that Sunday (3 DOM)

2 of the $300,000 homes hit the market on a Friday and sold the following Sunday (10 DOM)

1 of those $300,000 homes reduced its price from $310,000 and then sold, in a total of 20 days.

The other $350,000 home started at $375,000, and when they dropped it to $350,000 sold quickly on the 15th day.

The $1,000,000 house had started at $1,200,000 and after dropping the price in $50K increments every 60 days, finally sold in 240 days.

So, the AVERAGE days on market was:

(5 x 3) + (2×10) + 20 + 15 + 240 = 310 days = an AVERAGE of 31 DOM

The MEDIAN days on market was:

3,3,3,3,3,10,10,15,20,240 = 3 days on the market.

If you’re buying a home right now, would it be more important for you to know that ½ the houses sell in a weekend?  Or just the average was 31 days? It’s important for buyers to know just how fast our market is moving….

Right now, our demand is so much higher than supply, that’s why so many houses are selling quickly.  Frankly, those two $300K homes that took 10 days to sell … they did have *something* going on that caused that first weekend rush of Buyers to not jump on them immediately.  And it is indeed our current reality that in that price range, if you’re not sold within 2 weeks, you better drop your price from $310K to $300K!

Whether buying or selling, we look at the market for that particular buyer – because $300,000 in Apex is much different from $800,000 in North Raleigh.  They should sell at different speeds and they do. The speed of YOUR market is what we need to know. Unfortunately, we know that all agents don’t communicate this message, because they have buyers for the $800,000 house that have heard the news and believe those houses probably sell in a weekend too when the median is actually 21 days – and the buyer asks “what’s wrong with that house?” after just 2 weeks.

And it’s important for Sellers to know too!  Time and again, Sellers hear the market is great, but we have to show them – “Your house will probably sell the very first weekend we’re on the market” or “Just so you know, houses like yours take a median 30 days to sell.  Expect showings for a month before we receive an offer.”

And ALL OF THAT is why the MEDIAN is more important, at least right now.  The average is important as well, but it shouldn’t be used as the statistical measure as heavily as it is in the news.

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