Home Buying in Potrero Hill>Question Details

Higgs-boson, Home Buyer in Houston, TX

how could the median sales price INCREASE 2.5% y-o-y, while the price per sq foot DECREASE 50.6% in the same time period? surely the average square

Asked by Higgs-boson, Houston, TX Sun Jul 17, 2011

footage of sold properties coudl not have been that much larger for roughly the saem average price per property?

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As the other answers note, the statistics themselves are meaningless.

But to answer your specific question about how the median sales price could increase while the average price per square foot fell--you're comparing apples and oranges.

The median price is not the average or mean price. The median price is the point at which half the sales prices are higher and half are lower. Example: In this string of numbers, the median number is 3: 1, 2, 3, 4, 5. It's the middle number. The average (or mean) is taken by adding up all the numbers, then dividing by the number of numbers. In this case, adding up 1, 2, 3, 4, 5 equals 15. Divide it by 5 and you come up with 3. In this case, the mean and median both are "3."

Here's another sequence of numbers: 1, 2, 3, 40, 54. The median is still "3"--the middle number. But the average or mean is 20--100 divided by 5.

In your case, though, you're not even just looking at sales price. You're now introducing a whole other measure--price per square foot. But let's assume that the square footage remained steady, as you wonder about. Our sequence of numbers might look something like: -80, -70, 2.5, 3, 4. There you'd have a median increase of 2.5 while you'd have an average decrease of -28. You wouldn't--mathematically--be able to get an average decrease less than about -45%. But that's with just one string of numbers. In your case, though, you're dealing with two strings: sales price AND price per square foot.

Bottom line: It'd be very easy, and very likely, to have a small median price increase and an average per square foot decrease. What it sounds like is that much larger houses are now selling for what smaller less expensive homes did last year. And most of those smaller homes just aren't selling.

But, as noted above, the statistics really don't matter.

Hope that helps.
2 votes Thank Flag Link Sun Jul 17, 2011
Don Tepper, Real Estate Pro in Burke, VA
MVP'08
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Thank you everyone for your explanations. as many have explained, the two measures are not very comparable.
anyway, i am still trying to understand whether real estate in potrero hill is still falling in value. it appears that silicon valley is red hot and I am wondering there is a spillover effect into potrero hill. are there any concrete indicators yet about this, one way or the other? Mr Tepper commented that "What it sounds like is that much larger houses are now selling for what smaller less expensive homes did last year. And most of those smaller homes just aren't selling". This sounds like things are still poor. any thoughts?

thanks again
1 vote Thank Flag Link Sun Jul 17, 2011
All price indexes are useful for tracking changes over time. They are not indicators for market price currently or in the future.
To this questions specifically there was probably a sale that skewed the sales price up. If one was to dial into the data they would look for a small house in a fantastic location with killer views. On the other hand there could have been a large fixer sold that would have but the downward pressure on the dollar per square foot price.
Again these figures are helpful when comparing trends over previous time periods and should be compared from same source data which must remain consistent and transparent.
For instance the Case-Schiller index uses only pre-sold single family homes to track census metro regions. Knowing that one would look at the San Francisco regions numbers are really skewed by Solano and Alemeda counties while the City, with it's large number of condos, the index would not be useful.
1 vote Thank Flag Link Sun Jul 17, 2011
Jed Lane, Real Estate Pro in San Francisco, CA
MVP'08
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Higgs-boson:

DO NOT rely on median-based statistics, these measures are meaningless for targeted selling/purchasing as they have no regard for any of the specifics you may be comparing and can be skewed by segments of market activity not matching your individual situation.

A “median” is “the number separating the higher half of a sample from the lower half.” For example, let’s say three homes sell in a neighborhood for $400K, $425, and $575K in one month. The first two may be neglected REOs, and the third has been maintained beautifully. The current monthly median value for this neighborhood becomes $425K. Medians should not be used for making financial/Real Estate decisions, in my opinion.

Focus on your needs/wants (beds/baths/square footage, etc.) and then specifically target this subset of homes. The Median will then be more useful, but personally, I would use something better.... A Comparative Market Analysis (CMA) gives you the best representation of market price/activity/trend direction - for the specific property details you search on.

My suggestion: Interview a few Realtors®, pick one, and then team to develop a purchase strategy based on what sector of the market you are interested in.

Best, Steve
1 vote Thank Flag Link Sun Jul 17, 2011
The MEDIAN sales price for an area, neighborhood or city is based on the selling price of homes. (note that Listing price is not used, only after it is SOLD is the value determined.) Since every time period represents different houses, the numbers will always change. Sometimes the sample size is so small that the MEDIAN or AVERAGE will be drastically different.

The price of a particular home on a square footage basis is determined by the internal square feet and the SELIING price.

One statistic has nothing to do with the other!

Determining the AVERAGE of the $$/sqft is kind of a non-sensical figure since one house may have been Up-graded with Cherry Cabinets, hardwood floors, crown mouldings, triple-pane windows, etc., while the other house is a vandalized fixer-upper.

To equate one house with another on a $$/sqft basis, the two houses would have to be COMPARABLE.

I hope I've answered your question.

Good luck and may God bless
1 vote Thank Flag Link Sun Jul 17, 2011
Larger homes never saw the economic bite and since they now rule the market, they raise the median sales price, You are looking at the square foot prices of everything on the market, not just what sold!
0 votes Thank Flag Link Thu Jul 21, 2011
Actually they have.
Larger homes are selling and they are selling for a lot less than one can even build them for.
Here in CA it has a lot to do with the quantity of NEG AM loans that flooded the market in 2005 - 2006 with a 5 year ARM or adjustable rate mortgage.

Harold Sharpe - Broker
So Cal Homes Realty
(951) 821-8211
harold@socalhomesrealestate.com
http://www.realestatecanyonlakehomes.com
California Department of Real Estate Broker License # 01312992
0 votes Thank Flag Link Thu Jul 21, 2011
Could be a bit of "Reaganomics" or, as Bush said, "Voodoo-economics". In any case, it is probably a snapshot of what happened versus what is happening as of that original snapshot. Example: prices dropped from all time high of say $500,000 down to $300,000, then a year later the property increased by 2.5%, meaning that the snapshot event of $300,000 is now worth $307,500 -- an increase of 2.5% per year. However, the property is still underwater by the 166.67% that it dropped from it's all-time high. Confusing...
0 votes Thank Flag Link Tue Jul 19, 2011
Dear Matthew
I obtained those stats from trulia: http://www.trulia.com/real_estate/Potrero_Hill-San_Francisco/1453/

thanks
0 votes Thank Flag Link Sun Jul 17, 2011
Hi, I am not sure where you got you statistics specifically for Potrero Hill in San Francisco. I can not see any MLS data to show a reduction in the price per sq foot that you are mentioning.

For real statisitics, and a market overview (not by zip code but by area) please arrange a time with me directly to sit down together and review them. No other obligation.

Matthew Goulden
Web Reference: http://matthewgoulden.com
0 votes Thank Flag Link Sun Jul 17, 2011
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