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Understanding Average Sales Price
2010-03-08
One of the most common, yet often misrepresented, measurements we have in our industry is average sales price. On the whole, it’s an easy number to understand but there is so much more you can draw from it if only you scratch beyond the surface.
Media outlets, unfortunately, rarely scratch too far and we know that price changes make for easy headlines, even if a different story could be written with a little research. If nobody is telling the story behind your market’s numbers, then consider it your opportunity to be the informed source.
What we have going on in most markets is a natural part of a real estate cycle, even if it’s a slow recovery; as we have discussed before, we're able to tell that we’re moving to a better stage in the cycle by measuring first the number of transactions. The average price will normally continue to fall even while transactions sides improve, but the price declines come at a slower and slower rate until they level out and eventually improve.
If this is happening now in your market yet the headlines are focused on the average price drops, dig into the numbers and see if (a) the rate of price declines are decreasing and (b) the prices are being skewed by the mix of business. In other words, if fewer transactions are happening at higher price points, then the number of transactions at the lower price points is likely making the market’s average price look worse than it perhaps should be.
Simply due to the mix of business, the average sales price decreased 13%. This is happening in markets throughout the country, perhaps not in such extreme ways but it’s very real nonetheless. As the inventory of lower-priced homes continues to flood many markets, their sales are dominating the boards. This is not unexpected, but the story behind the numbers is barely being told because it’s a lot easier to get your arms around average sales price than it is to really break this down.
source Loremagazine
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