Last week, we shared data for San Francisco’s housing market during 2020 with a cautionary takeaway reminding readers that context is everything and some data points are better than others. Here’s the difference between median and average statistics and why you should ignore average sales prices.
Old Math Classes Revisited
Think back to your college statistics class — average and median both measure central tendency, but huge or tiny observations can skew averages significantly. I mentioned this in my last post — one big sale in a small sample size, like nine homes sold in any particular neighborhood, can change an average sales price by $500,000. That equates to a technically true, hugely misleading data point that’s essentially useless.
The more relevant data point to use is the median sales price. It’s largely unaffected by the very big or very small sales, but rather represents the middle-of-the-road figure for all properties. That means, quite literally, that half the homes cost more than the median price and the other half cost less. In spite of this, average sales prices tend to get more focus than the median, likely because it’s a much higher number.
A Perfect Example
This example from therealtor.com beautifully illustrates the median versus average pricing differences:
“We have a home here in Orlando that has been billed as the largest home in America under one roof. It is currently on the market for $100,000,000. That is $100 million, in case you have trouble with all the zeros like me. I ran the numbers and with the $100 million house the average list price in Orlando is $327,526 and the median list price is $168,808. When you take the $100 million house out, the average list price drops over $10,000 while the median price drops only $8.00.”
Granted, this is from an article written in 2011, which goes to show the real estate industry has been on this train for more than a decade. Here’s the bottom line — data takes both experience and context to truly understand. And without accurate figures and an understanding of how best to interpret those figures, all of the data in the world isn’t particularly helpful.
If you’re planning to buy or sell in San Francisco or looking at exploring your options in Reno, Nevada, let’s take a look at the data together.