Monday, March 30, 2009

The myth of median and average

Here's a note from my broker, Bob Call:

We read and hear about the “median” and “average” price of homes falling, but what does that mean as to the value of YOUR home?

Recently I was asked to review an appraisal for a local lender. The homes used to compare to the subject property were quite dissimilar, which made me question the appraiser’s conclusions. However, upon review I discovered the appraiser’s dilemma: reasonably comparable sales did not exist! In fact, in the price range of the appraised property ($500,000) there had only been a total of 5 homes sold in the entire North and West ends of greater Tacoma, including Fircrest and University Place, over the past four months.

The quandary led me to an interesting study of the marketplace and the conclusion: the value of your home has not dropped as dramatically as “median” and “average” reports would suggest. The study focused on the same neighborhood of this subject home, the North and West Tacoma marketplace (zip codes 98405, 98406, 98407, 98465, 98466, 98467) and included the four months from December ‘08 through March of 2009. In that period, 78.4% of the homes sold went for $300,000 or less.

During this same period, one year earlier, only 62.1% of the homes sold were under $300,000; and two years earlier, only 57.7% were under $300,000. Additionally, in the upper end of prices, only one home sold for over $600,000 this recent 4 month period, whereas 18 sold in the same period a year ago, compared to 40 two years ago! Imagine what that does to average and median prices! Additionally, in a study done of “Same Home Sold”, in other words, a house sold in 2006 or ‘07 then re-sold two years later, it was discovered that these homes only lost 6.8% of value; a far cry from a recent report in the TNT[1] that the median home price dropped from a high of $285,000 down to $235,000, a 17.5% loss in home value.

And of course, let’s not forget that this all happened at a time when the stock market lost 50%! So, although real estate values have slipped, don’t be misled by the reports of huge drops in “Median” and “Average” prices. It’s not as bad as it sounds. The reality is, a greater percentage of the homes sold have been in the lower price range, which has significantly dropped the average and median, but not so much the actual value of your home!

Over time real estate continues to be one of the best and safest investments. And with record low interest rates, tax incentives and a generous inventory of homes to choose from, this may well be the best time in the past 30 years to buy a home! And what other investment gives you high returns with tax benefits and shelter over your head?

[1] March 30, 2009, “Slouching Towards Recovery” All data derived from MetroScan public records.

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