The real estate market has been a hot topic of conversation in Central Oregon for the last several years, and especially in the last year. There's no shortage of news stories about the market activity and particularly the growth in the median home prices around Central Oregon. When shopping for a home or reading and watching the news, a person will often hear discussion about the median and mean prices when talking about home prices in various areas of the region.
This can and usually does result in confusion. Let me break it down.
Median versus average/mean: The median is a set of numbers where half of the numbers are higher, and half of the numbers are lower. For example, the median home price in January 2021 for Bend was $580,000. That means that in January, half of the homes that sold in Bend in January 2021 were sold below the $580,000 mark and half of the sales were above that median mark.
The average, or mean, is when you take all of the home sale prices within a specified time period, add them up and divide by the number of sales. For example, if 10 homes sold in the last 30 days, the average home price would be calculated by the total volume of the sales divided by 10. The issue that arises when relying on the average/mean sales price, is that if one home is sold at a significantly higher price, it skews the entire data set higher than is truly reflective of the majority of those 10 sales.
Which number is better to use when referencing real estate? Both the median and the mean are valuable. That said, when looking to buy and determine what areas are within a specified price range and the different price points of certain neighborhoods, the median is likely the better option for reference. This is because when looking solely at the average, that data can be skewed because of outliers (a property that has sold at a significantly higher or lower rate than is typical for the area). The presence of an outlier, especially in real estate, is not uncommon.
For example, several years ago I had a listing that sold for significantly less than was common for the neighborhood it was in—like, $150,000 less than was usual. The reason for that was the condition of the home in comparison to the neighboring properties, and the seller being in a situation where they needed to sell quickly. When a cash offer with a seven-day close came forth, they took it. This created a much lower average than was typical for the area because of the significant lower skew.
When evaluating a listing a price as a seller, it's good to consider both data points. It's good to calculate the average and then determine if there is an outlier skewing the mean and inflating or deflating the average pricing for the neighborhood. When an outlier exists, one can then reference the median price as the benchmark for the initial listing price. As always, it's important to speak with a real estate professional when looking for the most up-to-date market data and explanation of said data.