Median Prices are a Good Reflection of the Market

[Steve Beebo]

In my opinion, the best barometer of the market is median resale prices of SFRs. I’ve followed this figure since the 1980’s in San Diego, and although it’s not perfect, it’s the best thing we’ve got.

A lot of people claim that the reason it is not a good reflection of the market is that it doesn’t tell you exactly what people are getting for their money. Some say that the lower end of the market is not selling as well, which skews the median price. I’m going to have to call B.S. on that. I’ve never seen any evidence to back that up. I’ll concede that there are more concessions on sales this year than last, but for resale homes, concessions are nothing like builders are giving on some new homes.

According to the MLS, of all the SFRs that have sold in San Diego County this year, the average size of the sales is 2025 s.f. The average size of all sales in 2005? – 1981 s.f. Almost no difference. And the average size in 2004 was 1973 s.f.

[sdrealtor]

Most of the folks on this board wont even bother to respond to such an utterly ridiculous post. I can’t resist.

No difference between a 1981 sq ft home and a 2025 sq ft home? Are you stoned or just stupid?

Last time I checked the difference is 43 sq ft. When homes are selling for about $300/sq ft that’s another $13,000 decline that is hidden by using the median as a measure of the decline.

[powayseller]

My lack of response is not because I agree with you, but because… well, I’ll bite my tongue.

[TheBreeze]

Jesus Christ. Pull your head out of your tookus. This is a board for smart persons.

[bubble_contagion]

A better argument is that the median skews to the low end during sellers/bull markets. For example, right now when the market is starting to turn to a buyers market, the median priced house may be larger and of better quality than last year. During the peak of the boom, the median priced houses may have been smaller and of less quality. If this is the case, the median could be a good indicator of the rate of price change because even though it overestimates the price during buyers markets, it underestimates the prices during sellers markets.

[Steve Beebo]

Powayseller –

If you don’t think I’m correct, let me know why you think so. You are an intelligent person, so I will at least read what you say and give it thoughtful consideration. But don’t say that the median prices as reported are lagging by one to two years, because that is incorrect.

Median resale prices as reported in the newspaper every month are lagging, but only by 2-3 months. The UT reports the figure for the previous month’s closed sales. It’s now the middle of December, so these sales are from closings in November. Let’s say the average close date is November 15. But the sale that closed Nov. 15 probably went into escrow about 45 days ago on average, say on Oct. 1. So the median price that is reported this week, on average, went into escrow on October 1, which is 2.5 months ago. That is the only lag in the statistic. The UT compares the November figure to last month, and to last November.

sdrealtor – For the umpteenth time, you have revealed your lack of class, and your general lack of real estate knowledge. You think there is a $13,000 difference between a typical home of 2025 s.f. and a home of 1981 s.f.? (First of all, 2025 minus 1981 is 44, not 43, but I’ll let that slide. Also, the current median resale price of $540,000 divided by 2025 s.f. is $267 per s.f., not $300 per s.f. as you claim. I’ll even let that slide.) But Momma must have scooped you an extra helping of DUMB last night at the supper table.

Consider a typical median priced home of $540,000, with a typical size of +/- 2000 s.f., in a typical San Diego neighborhood, let’s say in Clairemont, or San Carlos, or Mira Mesa. Let’s say you are trying to evaluate what this house is worth, compared to a nearly identical house across the street that is 44 s.f. smaller or larger. Are you going to conclude that the house across the street is worth $11,748 more or less? (44 s.f. x $267) If you are, you are even more ignorant than I thought. Remember, the figure of $267 per s.f. includes the lot value, Einstein, which might be $250,000 to $350,000. The lot value is the same for an identical lot – it makes no difference if the house is 1700 s.f. or 2500 s.f. A knowledgable realtor, appraiser, or lay person is going to know that the only difference between these two homes is 44 s.f. times the depreciated current value of the living area size, probably in the range of $50 to $70 per s.f. of living area, depending on whether this is a newer or older home. So the difference in value between these two homes is going to be around $2500, not $13,000.

And sdrealtor, I would think that even you would have realized that the average or median size of resale homes in San Diego County goes up a little bit every year, for three main reasons:

1.) Thousands of homeowners add onto their homes every year, and none are made smaller.

2.) Every year, hundreds and hundreds of smaller houses are torn down to make way for very large houses.

3.) New homes built in San Diego County are larger than 2000 s.f. on average, and although new homes are not counted in the resale home prices, every year thousands of newer homes are added to the list of resale homes as they resell for their first time. Some of these homes were built in 1985, some in 1995, and some in 2005, but on average, they are larger than 2000 s.f.

So the average size of a resale house goes up slightly every year. If you don’t believe me, check with the Assessor’s office, or even with the real estate agent in the adjacent cubicle.

[Anonymous]

SB, I think you’re right on target; I don’t understand the complaint with median price if one focuses on that for SFRs. Your logic on lot size variation outweighing minor home size variation makes great sense to me.

[Anonymous]

Consider a typical median priced home of $540,000, with a typical size of +/- 2000 s.f.

probably in the range of $50 to $70 per s.f. of living area

So for 590K-610k I can get a 3000s.f. home in those areas? Hmmm.

Medians, in general, don’t carry a lot of information. You don’t even need math, just rank order. There are a lot of factors that can skew the median, as you have mentioned. Do you really believe that they skew in a consistent way (and then at best we have a skewed, yet consistent measure) or that the measures mentioned are orthogonal such that the factors that skew the measure are independant and cancel each other out, leaving a robust measure of resale prices? I find the second to be harder to justify.

None of this rejects the hypothesis that this may be the best measure available to the general public. Banks, capital markets, risk managers with millions of dollars in play, eh, not so much.

[sdrealtor]

Amazing, when you try to be intelligent you continually fail. Sure I know everything about comparing indivdual homes and that 44 ft doesnt necessarily add a specific dollar amount to a specific home. We are not looking at individual homes my dopey colleague, we are looking at averages for thousands of homes. The point that we are comparing a hypotentical larger home at lower price to a hypothetical smaller home is entirely relevant.

Here’s one more fatal flaw in your argument. You stated at the outset that you were using the average size house not the median size house. If you are looking at the average sized house you need to look at the average sales price also which is over $700,000 making my offer of $300/ sq ft very generous.

I ask again, you are in the field and have real examples you can provide about what you are seeing values come in on refis of homes that were purchsed 2 and 3 years ago. Stop with the hypothetical nonsense, the industry blabbery and talk from experience. That is if you actually are still doing any business bonehead.

[sdrealtor]

“Your logic on lot size variation outweighing minor home size variation makes great sense to me.”

Of course it does and it is yet another fatal flaw in the median. The median house this year can be represented by an 800 sq ft house on a acre which is being compared to a 4000 sq ft McMansion on a 5,000 sq ft lot that sold last year.

Median….HUHHHH?

Its all garbage. The only accurate measure is Same House sales. I’ve provided many on numerous threads. The only ones that Beebo posted were major remodels, high end ZIPS (Coronado etc.). Show me an average tract home purchased between mid 2004 and resold last month with no major changes and I’ll show you a homeowner that lost money in the vast majority of cases.

[Anonymous]

sdr, I agree that same home resale prices are the best data. I feel comfortable with OFHEO (the original same home resale/refinancing data set), though I know that it has weaknesses (inflated values from refinancings).

[img_assist|nid=1685|title=
Median Prices vs. OFHEO Index|desc=|link=node|align=left|width=466|height=311]

Some months ago, when I plotted the median price for a San Diego resale home (from DataQuick) vs. the median price for a San Diego same-sale/refinance home (from OFHEO), I saw no important difference.

This is why, for me, median resale home price from DataQuick works fine.

[sdcellar]

I really have to agree with sdrealtor (although I do see what you are saying jg). Steve Beebo, are you really not seeing the drop in prices for houses you appraise, and has it not been more significant in many cases than the current decline expressed in the median?

I’ve seen plenty. Admittedly, I’m only looking at a few zip codes, but I have no problem finding homes that sold for significantly less than they were purchased for a year or two ago. You must see this, right, or am I mistaken and you’re not an appraiser?

Median might be useful for determining trends, but as a gauge of what is happening is to specific home values, I’d disagree. Are you saying they are?

[sdcellar]

Steve Beebo, It is possible I’m inferring too much into what you’ve posted in this thread as well as reconciling that with posts you’ve made in others.

Honestly, I can’t tell what you’re trying to say. Sometimes, it seems like you support that a decline is underway and likely to continue. Other times, the opposite. I’ll fully admit it could be my denseness.

[PerryChase]

To me, looking at median price movements is like looking at GDP data. A 0% – 1% growth rate sounds like we’re doing OK but its feels very painful especially in like of the expectation that living standards should increase.

That figure does not reflect the state of the local markets.

Median price is not the same house value because of the changing composition of the house sold. Let’s say that buyer expectations is to pay $500k for a SFR. If houses drop 20%, buyers will (at least initially because they are unware of market movements) continue to buy $500k but they’ll get better homes. I believe that’s what is happening now…. buyers are still thinking we’re taking a “breather” from price increases.

I was at the auto shop today and was chatting with a Realtor who was there. He drives a very expensive sedan but couldn’t afford to get his power steering pump fixed until next month. But he still believes that the Spring will bring about an upturn in the market. Yeah, many are still drinking the cool-aid.

[Steve Beebo]

sdcellar – I do agree that a decline is underway, and is going to continue for at least the next year, and probably longer, it’s just that I do not see the majority of homes as having already lost 10/15/20% in value that some have claimed recently on this forum.

What I am seeing is that there are large variations in price changes over the last year, depending on neighborhood and price range. There are a lot of homes, and a lot of areas, that have seen little or no declines at all up to this point. There are other homes and submarkets that have lost 20% in value.

The worst areas I have seen recently are San Elijo Hills and 4S Ranch, where entire areas of homes bought in 2004 or 2005 have lost $100,000 or more in value in the past year, and some condominiums, either conversions, or older condos in areas in which there are a lot of competing conversions. Some of these properties have lost 20% or more in value. But I have also seen condos that have lost no value up to this point.

My point in starting this thread was to show that the average size of home sales has not really changed at all in the past several years, and to also offer my opinion that the drop in median home prices of approximately 5% in the past year mirrors what I am seeing, on average.

sdrealtor – Here is a list of homes that sold in the past several years, and all resold this month for higher prices. Enjoy!!

1646 Tennis Match Encinitas 6-03 499K 12-06 627K

1117 Lemon El Cajon 10-04 310K 12-06 389K

4503 Sierra Morena Carlsbad 7-03 440K 12-06 509K

2876 Vista Acedra Carlsbad 1-04 800K 12-06 905K

9276 Birch Spring Valley 11-04 475K 12-06 640K

6151 Veemac La Mesa 6-04 398K 12-06 REO 410K

2407 Sweet Sage Chula Vista 3-05 726K 12-06 820K

1586 Piedmont Chula Vista 3-04 455K 12-06 540K

717 Esla Chula Vista 4-04 530K 12-06 595K

2524 Camino Narciso Chula Vista 4-04 720K 12-06 775K

Granted, these homeowners probably made little or no profit after selling costs – I’m just trying to demonstrate that not all homes have already had drastic price drops.

[Author]

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