murray, I know that the median is up 2% from last June, but what does that tell you? Do you really think that a house can fetch 2% more than it could last year? When I sold my house last fall, I fetched 5% below a very competitive market price on 2 offers. My house sold for the same amount as a 30 year old home on 2.5 acres; mine was brand new on 5 acres. The realtor said based on the newness and the gourmet kitchen and 5 acres, mine should go for $830K. Both my offers were $780K. A 3rd buyer asked if I would go under $780K, and when I said no, they walked. So I started to experience the decline myself.
I wondered, howcome my house sold for 5% off, when the median is still going up? My curiosity led me to ask many people, until I found the answer online in Bob Casagrand’s newsletter. He explained what happens with the median, and that you have to dig inside the numbers.
The median is mathematically correct but doesn’t tell the whole story. Let me try again to explain the median.
Say you’ve got 3 CEOS each buying $2mil, $3mil, and $3 mil homes, and you’ve got 2 engineers buying a $300K home and a $500K home. The median is $ 3mil.
Last year the median was $500K, because we had 20 people buying $500K homes. Last year, interest rates were low, and more middle income people qualified. Now these people are priced out: fewer buyers. Sales are down 30%, and that is mostly in the low end. The high end is Hot. THE HIGH END IS HOT!!!
Does everyone get it now? The rich are still buying, because their income is not dependent on wages, and they don’t care if interest rates go up and housing prices go up.
But know this: the $3 mil house was worth $3.8 mil last year, and the $2 mil house was worth $2.5 mil last year. It’s all going down, but the distribution is changing.
So the median is going up because the distribution of homes sold has shifted. But each individul house is worth less today than it was in 2005. The $3 mil home was worth $3.5 mil last year, and the $2 mil home was worth $2.38 last year.
No offense taken with the public school comment, but I have an MBA and computer science degree, and I ran circles around your logic. You’ve got a lot to learn about medians, murray.
likewise, in 2012, when the market turns around, the median willl still be going down, although prices have turned up on individual homes. The median will tell us prices are still dropping, when they are actually going up. So DO NOT Rely on the median, if you want to be ahead of the masses. Smart investors use the leading indicators, not the median. Medians are for dummies!!!
