Why you can’t trust median home prices

This spreadsheet may come in handy if you ever have to explain to someone why you can’t trust home prices published in the media. Typically, home prices are based upon the median sales price. In my area (Sothern California) it is not uncommon to see home prices down 20% or more (YoY) in one city, while the city next door has an increase of 20% or more.

Most people know why this happens (or at least they think they do). In the spreadsheet called “Median” I made up a city called Mytown.

1. Mytown was a new city last year with only twenty new homes. All twenty homes were purchased  last year, at a median price of $1,050,000.

2. Fifteen of the same homes sold this year in Mytown, all down in price 10% from last year’s sale prices. The other five homes in Mytown were not sold this year.

3. The fifteen that sold were all of the highest priced homes of the twenty, and the median price rose to $1,170,000.

4. The median price was reported up 11.43% this year in Mytown, even though all sale prices were down 10%.

Obviously, this means that if more of  the higher priced homes sold this period than the last period, prices may appear to have risen, when maybe prices actually fell. Likewise, if more lower prices homes sold, prices might appear to be lower.

 Download “Median

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