Nearly everyone has heard or read a story lately regarding the climate of the real estate market. It is important to remember that real estate is locally driven, sometimes differentiated all the way down to a specific or unique neighborhood. Statistics used to describe the state of the national real estate market do not bear the same weight or the same meaning on many local markets.
The best source for statistics about current home prices and trends in any region is the local Multiple Listing Service, or MLS. A Multiple Listing Service is a cooperative of real estate brokerage firms. The MLS maintains a robust database containing a consolidation of property listings submitted by member brokerages over many years. It is available to all member brokers and their agents and provides a fast, effective way to list, view and market properties and conduct market analysis, benefiting both the buying and selling public as a whole.
Market statistics provided by the MLS are explained through the use of terminology, such as median, mean, and percentage change. Here is a look at some simple and easy to understand definitions of these terms. A median, the most frequently used and cited statistical measure in real estate, is simply the middle value of a set of numbers. In other words, it is the exact point at which half of the values are higher and half are lower. With home prices, the median is the exact sales price where 50 percent of the homes sold for less than the reference price and 50 percent sold for more. A median is especially relevant when discussing home prices, because it is not influenced by extremely high or extremely low prices.
Another popular term is mean. The mean, or average, is the sum of a set of values divided by the number of values. Averages are useful in determining market time of properties, but averages are not useful in measuring home prices. Highly susceptible to becoming skewed by outliers (extreme highs or lows) in the data set, averages can drastically alter results. The average price of a home in any Hampton Roads city will be artificially inflated if a few homes sold for prices greater than a million dollars.
Finally, a more frequently used statistical term is percentage change. This phrase is used to show a month-to-month or year-over-year comparison. A month-to-month percentage change compares the subject month’s value to the preceding month’s value. A year-over-year percentage change describes the trend of a particular statistic from a period in one year as compared to the same time period the following or previous year. Any change in value is reported as a percentage of the prior year’s reading.
Statistics are an extremely valuable tool for evaluating the condition of any real estate market, provided there is a basic understanding of both the source of the data and the terminology used in the reporting.
—Story courtesy Real Estate Information Network, Inc. (REIN)