The average and median sales prices are two different ways of determining the housing prices at a specific location. These methods differ as follows:
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Median Sales Price Meaning
Median sales price refers to a middle price point in an ascending or descending sequence of listed prices. Thus, it divides the set of prices into two equal price groups, where one includes all the prices lower than the central value, and the other comprises all the higher prices.
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It is one of the valuable methods used for price analysis in the housing and real estate market, facilitating the sellers and buyers to gauge the central price in a neighborhood. It provides a realistic overview by eliminating the outliers or the impact of sales price skewness, I.e., unusually high or low price points at the tails.
Key Takeaways
- The median sales price refers to the central price in the list of sales prices of the homes in a particular vicinity or neighborhood when sequentially arranged in an ascending or descending order.
- Half of the home prices in the list are below the median price, while the other Half, or 50%, are above this price point.
- The median sales price is better than the average sales price since it determines a realistic price without any outliers or skewness due to extreme prices.
Median Sales Price Explained
The median sales price is a central price point in the series of listed prices in an ascending or descending series. It, therefore, segregates the prices into two parts, where 50% of prices are below the median value and the other 50% are above the median price. Such an evaluation plays a critical role in an area's housing and real estate market since it determines whether the prevailing home prices, as listed on real estate online portals and coated by the real estate, are genuine.
The median sales price of existing homes, houses sold, and new houses sold in the U.S. are stated on https://www.census.gov/, which is the U.S. Census Bureau's official website, on a monthly and quarterly basis. As per the report of Visual Capitalist - https://www.visualcapitalist.com/median-house-prices-vs-income-us/, the median sales prices across the U.S. have shown a considerable upswing in relation to the median income in the nation between 1984 and 2022. Thus, it shows that owning a home has become almost unaffordable for an average American as the median home prices have been 6 times the median income of Americans.
The median home price has been a crucial way of booking profitable housing deals for sellers and buyers in the real estate market. Moreover, it saves the buyers from investing in properties that are priced exceptionally high due to excessive demand. Also, it increases the bargaining power of the real estate buyers and sellers. Hence, before entering into a house deal, the parties often consider the median and average sales prices prevailing in that area as stated on the official government or housing authority website.
How To Calculate?
The median sales price of homes is nothing but the central tendency in an arranged series of listed sales prices. Given below are the basic steps involved in its determination:
- Arrange the listed prices of the homes in ascending (lowest to highest) or in descending (highest to lowest) orders.
- Then, divide the total number of listings by 2 to determine the central tendency.
- Now, in an odd series of listed prices, the sales price that falls on the number stated as the central tendency is the median sales price of homes.
- However, for an even set of prices, the central tendency would be denoted as 1.5, 2.5, 3.5, etc. Thus, it cannot be referred to as a numbering of any particular value, but it will be a middle point between two prices. Hence, the median sales price will be the average of the numbers just below and above this point; for example, for 3.5, it will be the average of 3rd and 4th prices in the series.
Examples
Moving ahead, let us peep into the concept and need for considering the median sales price of existing homes and sold-out real estate across different locations through the following examples.
Example #1
Suppose we have the following list of existing home prices prevailing in a particular area:
1. $190,021
2. $240,254
3. $514,125
4. $278,467
5. $276,886
6. $363,009
7. $402,163
8. $426,652
9. $391,785
We need to determine the median sales price of existing homes in the area.
Solution:
First of all, let us arrange these listed prices in ascending order:
1. $190,021
2. $240,254
3. $276,886
4. $278,467
5. $363,009
6. $391,785
7. $402,163
8. $426,652
9. $514,125
Now, in the above series, there are 9 different prices, and the median value is the 5th price . Hence, the median sales price in this case is $363,009. Simultaneously, the average sales price in this case is $337,014 (sum of all the prices/9). A home buyer may consider the houses close to the median home price, I.e., $363,009 or below, as a winning deal. However, a higher-priced home may have additional amenities or may have a more oversized floor or construction area.
Example #2
According to TradingView's report - https://www.tradingview.com/news/reuters.com,2024:newsml_L2N3G319A:0-us-new-home-sales-fall-median-price-lowest-in-more-than-2-1-2-years/, the median sales price of the new home in the U.S. was lowest in more than 2.5 years. In February 2024, the sales of new single-family homes in the U.S. experienced a slight decline of 0.3%, reaching 662,000 units annually. Moreover, the median price of new homes in February was $400,500, marking a 7.6% decrease from the previous year and the lowest level since June 2021. However, compared to the previous year, new home sales were up by 5.9% during the February month. Also, the mortgage rates increased during this month, while the 30-year fixed-rate mortgage cost peaked at 6.94%.
Eventually, there was an increase in the supply of new homes in the housing market, with 463,000 new homes available at the end of February, the highest level since November 2022. There is currently an 8.4-month supply of houses in the market, which is higher than January's 8.3-month supply. The majority of new homes sold in February were priced between $300,000-$399,000. Moreover, the number of houses completed reached their highest level in 17 years this month. Indeed, talking about the housing inventory, the houses under construction accounted for 58.7%, while homes yet to be built constituted 22.9%, and finished houses held 18.4% of the share.
Median Sales Price Vs. Average Sales Price
| Basis | Median Sales Price | Average Sales Price |
|---|---|---|
| 1. Definition | The median sales price is the central tendency or the middle point in a series of home prices listed in ascending or descending order, thus dividing the set of prices into two equal portions, where 50% are higher and 50% are lower values than the midpoint. | The average sales price is the mean of the listed home prices over the period. |
| 2. Extreme Value | It is not influenced by outliers or extreme price points, both low and high. | It accounts for the extreme price points while evaluating the mean. |
| 3. Calculation | It is evaluated by arranging the listed prices in an ascending or descending series. Then, the total number of values is gauged to find the central tendency as (N+1)/2. If the series is odd, then the median price is the value falling on the number so acquired. But if the series is even, then the value will be a .5 decimal in between two prices. In this case, the average of the two values is the median sale price. | It is the sum of all the listed prices divided by the total number of listings. |
| 4. Useful When | A high number of sales take place in the area, and the prices are prone to skewness pertaining to the outliers or unusually high or low prices. | Serves as a starting price point to negotiate a deal between the buyer and seller |
| 5. Buyer’s Interpretation | If the median price is more than the average sales price, then the market has more of an affordable housing supply. | If the average sales price significantly surpasses the median price, then the market is selling most of the luxury homes. |
| 6. Advantages | Provides a realistic price overview, ensures that the value is not skewed by extreme prices, and gauges potential house purchase and sale opportunities. | Easy to evaluate, reflects foreclosures and short sales if it tends to be significantly lower than the median sales price, and can be compared with the median price to identify outliers |
Frequently Asked Questions (FAQs)
1
What is the median sales price of existing homes in the U.S.?
2
What was the median sale price of a home in the U.S. in 1999?
3
What is the median sale price of houses sold in the U.S.?
