Misinterpreting the Median

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As if on cue, the Anderson Forecast has offered up an example of how the median price routinely gets interpreted incorrectly. According to Kelly Bennett's article here at voiceofsandiego.org, Ryan Ratcliff, the Anderson Forecast's go-to guy San Diego, claimed that "prices have stayed relatively stable for about six months." The Union-Tribune's take on the same topic echoed a similar sentiment from Ratcliff:

He added that despite the gloomy statistics, the foreclosures have so far had no impact on local prices. In fact, San Diego's median sales price has stabilized over the past three quarters, even as foreclosures rose.

It's true that the median sale price has stabilized over the past three quarters, but as I described in excruciating detail in my article on home price metrics, this does not mean that the market price of any given home is stabilizing.

As a matter of fact, it is not. The red bars on graph to the right indicate the median price of a San Diego resale single family home over the past three quarters, the timeline specified by Ratcliff in the U-T. The blue bars display the price of a San Diego resale single family home as measured by the far superior Case-Shiller Home Price Index (the index values have been rebased to the Jul 2006 median price for easy comparison, and since the March data isn't yet available I've only displayed the HPI through February). The steadily declining Case-Shiller HPI clearly shows that the stabilization of the median price masked the fact that while people were typically spending the same amount to buy a home, they were getting more home for their money.

That a level-headed and deservedly respected group of analysts is getting tripped up on this distinction just goes to show how widely misunderstood the median price is.

-- RICH TOSCANO