How Median Home Prices Can Be Misleading

The median can be a deceptive statistic when it comes to real estate growth. Often home sellers will point to an increasing median and say that home prices are increasing, but they can actually be decreasing. For more on this see the following article from Tim Iacono from The Mess That Greenspan Made.

Unless we see another big leg down in credit markets and financial markets (which is entirely possible), it could well be that the worst of the median home price declines are now behind us in many parts of the country.

However, that doesn't mean that home prices are going to stop falling anytime soon.

A good example of this dynamic - where an increase in the number of higher price homes in the sales mix pushes the median price up as prices, generally, continue to decline - can be seen in the latest Dataquick report on June real estate sales for Southern California.

Fortunately, most news outfits seem to be addressing this issue up front and they are to be commended for that. Both the DataQuick report and this story in the LA Times were quick to attribute the increase in the median price to a changing sales mix.

But, how real estate sales agents use this information is an entirely different matter. As a good salesman will always look for ways to "motivate" a prospective buyer, it would seem that this is all too easy a piece of data to be used in a less than honest manner.

Here's what median home prices look like for all six Southern California counties:



At this point, it's important to remember that, while median home prices have now risen for two or three months according to DataQuick, the S&P Case-Shiller Home Price Index for the Los Angeles area is still falling - down almost one percent from March to April, according to the most recent data, and almost 22 percent below year-ago levels.

The DataQuick data is showing a sharp decline in year-over-year home price declines, ranging from -11 percent in Orange County to -42 percent in San Bernardino County where, apparently, they just don' t have enough higher priced homes to sell.



Foreclosures accounted for just 45.3 percent of all sales in June, down from over 50 percent in recent months, an indication that while conditions are still very far from normal, they are "less bad" than they were earlier in the year.

Since Marshall "almost all if not all of those gains are here to stay" Prentice is now retired, new DataQuick President John Walsh provides this month's commentary:

The rising median should still be viewed mainly as a sign the market’s moving back toward a more normal distribution of sales across the home price spectrum. Sales in many higher-cost neighborhoods couldn’t have gotten much lower, so this recent uptick in activity should come as no surprise. The recession and problem mortgages are fueling more high-end distress, hence more high-end ‘bargains.’ What’s missing, still, is a wide-open financing spigot for the would-be buyers of these more expensive homes.

It would be nice if they would just come out and say, "Prices are not going up even though median prices are rising. In fact, home prices are still going down".

But, clearly that would be too much to ask.

This article has been republished from Tim Iacono's blog, The Mess That Greenspan Made.