I interviewed a real estate agent who said now is the time to sell because average sale prices in my city rose 15% last month—but the last newspaper article I saw said sales are way down. How is this possible?
It’s possible because your real estate agent was likely referring to something completely different than what the newspaper article is describing. While both were referring to conditions in your real estate market, they were looking at different measures of those conditions.
The average selling price is the total dollar volume of all property sales divided by the number of property sales. Average dollar values can be skewed if there is a particularly expensive or particularly cheap property that sells in the time period in question. Imagine in one month, there are four homes that sell for $200,000, but a fifth home sells for $1.5-million—the average sale price of the homes that month is $460,000, even though only one home sold for more than $400,000.
Now imagine that in the prior month the number of homes sold was the same, but the fifth home sold for $200,000 not $1.5-million. That month’s average price would be $200,000.
A single expensive home sale can make the average sale price rise significantly.
When they refer to sales being “way down,” they’re likely referring to the number of sales. And yes, it’s possible to have a higher average price this month over last, but still have lower sales. Take the example above but change it so that only two home sales occur—one at $200,000, and one at $1-million. The number of sales is much lower (2), but the average price is $600,000.
There are many things to consider when someone is talking about the state of the market, whether average prices or number of home sales. Remember, all real estate is local. The average price in Calgary doesn’t tell you anything about current values in a specific neighbourhood or on your street—and there are wide variations in prices across a city.
Just as the average temperature in Canada tells you nothing about how you should dress for the day, the average house price over a set period of time doesn’t tell you how much your home is going to sell for.
Any time you look at housing statistics, you can’t do so in isolation. Take in as much information as you can and look to your real estate professional for market advice and information—but keep in mind that nobody has a crystal ball about what the market will do next.
“Ask Charles” is a question and answer column by Charles Stevenson, Registrar of the Real Estate Council of Alberta (RECA), www.reca.ca. RECA is the independent, non-government agency responsible for the regulation of Alberta’s real estate industry. We license, govern, and set the standards of practice for all real estate, mortgage brokerage, and real estate appraisal professionals in Alberta. To submit a question, email [email protected].
