Joe And Doug Williams

Tracking Average Prices

13 February 2018
Joe And Doug Williams

Tracking the average price of real estate – while it sounds like a fairly simple concept – is actually a complicated subject. Should we compare the most recent month’s average price with the same month last year? Or should we compare the current month to the month preceding it? Or should we compare entire years against one another?

Real estate prices are most commonly compared on a year over year basis. January 2017 to January 2018 for example. Since different monhs experience different levels of activity, best to compare apples to apples, December to December and January to January. The issue with comparing January 2018 with January 2017, is we might lose the important context of what happened between those months. January 2018 prices are lower on average than January 2017 prices. But it has not been a slow 4% decline in prices from January to January. Instead we saw a massive run up in prices until April 2017, followed by a drop in prices, and a rebound and stabilization. I am using generalities here because different areas and segments are behaving differently – and – short term, month to month comparisons are volatile!

Year over year is not perfect, but month over month, might be even more problematic. Consider this scenario: its a slow month sales-wise, but coincidentally a couple rare 10 million dollar houses sell in December. January has lots of sales, but most of the sales are in the more common price range of ” 700k to 1M (no 10 million dollar white whales). The average price would drop substantially from December to January. But it does not mean that YOUR house lost value. It could actually be the opposite. The average price can rise and fall in the short term based on extraordinary events, like the sale of uncommonly expensive homes.

Another approach is to compare year vs year. 2017 average prices to 2016 average prices for example. In the long run this might convey the most comprehensive picture. Looking back at a 10 year period, it evens out short term fluctuations. But it falls short in terms of explaining recent market conditions and the more near term direction of of prices.

Month over month, year over year and year to year comparisons all have a role to play.These are just 3 methods that we can use to compare average prices. There are many more ways to track prices – and many more stats that we employ when trying to understand the market. In addition to stats – anecdotal evidence – and the “scuttlebutt” about an area – play an important role in understanding the direction of the market. No silver bullet for something multifaceted, complicated, and always changing! Feel free to give us a call to chat about real estate anytime. We always appreciate your referrals to friends and family!