Two Words: Average and Median

Two Words: Average and Median


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Two Words: Average and MedianIn almost every news report about real estate we come across two words: average and median pop up, as in this report from Investopedia. “It’s no secret that rising home prices and fierce competition for low inventory are throwing a wrench into homebuyers’ plans. But for millennials, there are five cities in which it’s especially challenging to become homeowners, according to new research from Realtor.com. A mix of limited supply, surging home prices and intense demand make it harder for millennials to buy homes in San Jose, California; Seattle; Salt Lake City; Minneapolis; and Omaha, Nebraska, Realtor.com found.

Omaha, Nebraska – Omaha has become a popular destination for millennials who want to start families because of its low cost of living, strong job market and high-rated schools. It’s not a tech hub, but Omaha is a hub for financial, medical and military jobs. The median list price in Omaha is $283,000. Millennials earn an average of $63,500 per year and account for 13.8% of Omaha’s population.

What is the difference between the two words: Average and Median?

Judy Hedding at About.com wrote an article explaining the difference. First, let’s show how the median price is arrived at:

Here are 11 fictional home prices.

  1. $100,000
  2. $101,000
  3. $102,000
  4. $103,000
  5. $104,000
  6. $105,000
  7. $106,000
  8. $107,000
  9. $650,000
  10. $1,000,000
  11. $3,000,000

The median price of these 11 homes is $105,000. Five homes came in with lower prices, and five homes came in with higher pricesd. The median really is the middle value. 50% of values are above it, and 50% below it. When the data is not symmetrical, this is the form of ‘average’ gives a better idea of any general tendency in the data.

The average price of these 11 homes is $498,000. That’s what you get if you add up all those prices and divide by 11.

What difference does it make?

Suppose you have a fine French chair you brought back from your trip to Europe. You celebrated your wedding anniversary there and bought the chair. A friend comes over and asks if this chair will support her. She weighs 250 pounds. Oh yes, you say it will support the average weight of 498 pounds. She sits, and your fine memento collapses into fragments. You meant to say it will support the median weight of 105 pounds.

Knowing how average and median are arrived at gives you information you can act on. Suppose you are looking for a house and your realtor says, “The average price of a house in the Omaha area is $498,000.” You might get discouraged if you are looking for a house priced at $105,000 and say to your spouse, “Honey, we can’t afford to live here. The average house is way above what we can afford.”

However, if your realtor says, “The average price of a house here is $498,000, but the median house is priced at $105,000.” You could take heart that you will find something in your price range, for of all the houses on the market right now, 50% are priced at $105,000 or lower

Both averages looked at over time, will give you information about the state of the real estate market nationally and locally, but understanding average and median, when referring to housing prices, gives you enough information to make you a happy first time home buyer.

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