What are homes really selling for….

Home prices are generally reported in one of three ways: as an average price, as a median price (both of which include dissimilar properties), or as a “constant quality” price (which compares very similar properties). Let’s take a brief look at these three methods.

The average price

One way to gain some idea of how much home prices are rising or falling in a certain area is to create an average of all recent sales. For example, one analysis may concentrate on all the selling prices from last month in the Denver area.

Denver, though, is a broad and diverse area. If there is a run-up in one large neighborhood’s prices, the averaging process won’t clarify that the changes were actually accounted for by a limited area. To minimize the confusing ups and downs, economists sometimes choose to use a “moving average.” In March, they may average the prices for January through March, for example, and then in April, the prices for February through April, and so forth.

The median price

In this method, all selling prices for one period (like a month) are lined up from lowest to highest. Then the middle number, which is the median price, is extracted from the list. There are limitations here, too, of course. If, for example, a few more luxury homes sell in that month, the median price will be pushed higher, even if no prices actually change, and closer study is needed to discover what is really going on.

Constant quality

Economists Karl Case and Robert Shiller developed a tracking system that compares the price changes on consistently similar (or “constant quality”) properties. This may be the most accurate of the three ways to track price changes in large areas, but it is not without its drawbacks. The surveys are limited to 10 and 20 major metropolitan areas, for example, and if the prices of specific types of homes are rising, they are given undue weight in the survey.

The best way

As you know, no one knows local price trends better than the seasoned real estate professional….give us a call:)