What is the Difference between Median and Average?
A piece in HousingPredictor focuses on the 2018 outlook for Missouri Housing Market. Based on statistics from the real estate website Zillow, the average home value in Missouri is at $148,469. Home value has been on the rise in the state since last year, at a rate of 4.9%. Zillow expects the value of homes to continue to rise as much as 3.9% by 2019. The article uses words like average and median. What is the difference between Median and Average?
The article goes on to say, “The median price per square foot of homes in Missouri is $107. That is a substantial increase from the amount of $84 from September 2012.
The average amount of days that homes stay on the market in Missouri is currently at 85. The Missouri Market Health data shows that the state has a score of 3.6 out of 10. However, home sales are expected to rise within the coming months. That is a reaction to the threat of higher interest rates.
What is the difference between Median and Average?
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.
- $100,000
- $101,000
- $102,000
- $103,000
- $104,000
- $105,000
- $106,000
- $107,000
- $650,000
- $1,000,000
- $3,000,000
The median price of these 11 homes is $105,000. You see that five homes came in lower than $105,000 and five homes came in higher. 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 in France and the chair brings back memories of that wonderful trip. 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 Kansas City 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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