Median Home Prices - What They Mean

Median home prices are falling in many communities around the country. OK, what does that mean? The median is a statistical term that means the half point, or 1/2 the homes sold below this point and 1/2 sold above. It’s a convenient indicator, but not real accurate.

Our market is a small market compared to many, but we’ll use it to illustrate the point. We’ve reported on these pages that the strongest market point in the Daytona Beach real estate market is the below $200,000 price point. For this year, 55.7% of homes sold in the Daytona Beach MLS were sold for under $200,000. From January through September 2007, only 45.1% of homes sold under $200,000. Since October of 2007, 54.9% of all homes sold have been under $200,000.

Why is this important? If more and more of the homes selling are selling at under $200,000, the median or half way point of homes sold will be much lower. Look at these numbers:

• In January, 86 of 164 homes sold were under $200,000
• In April 162 of 277 homes sold were under $200,000
• Sales increased from January to April from 164 to 277, or 113 properties
• 76, or 67%, of the increase were in the under $200,000 price range
• 57% of April sales were at under $200,000.

With 57% of sales coming at under $200,000 that means that the median, or half point, must be under $200,000, and at $180,000, it was. It March, the median price was $185,000. Does this mean that home values in Daytona Beach fell by 3%? NO! More homes were sold at a lower price, but, that does not mean that housing prices fell.

What we have been seeing since September is that more homes are being sold under $200,000. There is no doubt that we have seen prices overall drop, but it is inaccurate and misleading to use median prices to determine whether home values are falling or rising. Only by comparing actual homes bought and the peak of the market and selling now can home value difference be calculated. That’s very difficult and time consuming and we haven’t seen any reports of this type. So the media uses the easy to compute media number that’s not really a very accurate indicator.

We believe that for the Daytona Beach Homes and Condos market that there are three broad markets:

• Under $200,000 Homes and Condos (57% in April)
• $200,000 - $300,000 (23.8% in April)
• Over $200,000 Homes and Condos (Less than 18% in April)

57% of April sales were under $200,000, but OVER 82% were under $300,000. For the year to date, only 63 or 8% of homes sold were at more than $500,000. In the Daytona Beach area, $500,000 is mid-market to high market pricing, while $1,000,000 is very high market. Few homes are sold at $1,000,000 or more. See our Daytona Beach Real Estate Market Report April 2008 for a complete breakdown of homes sold by price.

Foreclosure sales and short sales will be putting additional pressure on the median price as many of those will be below $200,000. The median price for homes in Daytona Beach will not stabilize or start to increase until more homes and condos are purchased in the higher price ranges. We believe that will come with improvements in the economy and when lenders remember that they make their money, in the long term, from lending.

We are by no means suggesting that the market is not a mess. It is. Homes are selling at less than 1/2 pre-bubble volume. We are in a crisis, but we believe it’s wise to know what the number being reported actually mean. So, the next time you hear median housing prices are falling, we hope you will have a little better understanding of what exactly what that means.

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