Is median price the best benchmark to analyze housing market?

masouds Las Vegas Real Estate 1 Comment

Is median price the best benchmark for Las Vegas housing reports? No. Then what is?

Las Vegas housing market reports have been based on the median price of homes sold which is $313,000. This is how it has been done since the beginning.  But is it the best benchmark to measure home price gains or losses in the housing market?

The median price of homes or condos shows the number in which half of the units have sold for higher prices and the other half for less. It doesn’t measure whether or not unit prices have appreciated or depreciated.

This graph shows the median price of Las Vegas homes from 2017-2019.

Median price of Las Vegas homes from 2017 to 2019

And this table shows the median price gains for the same period.

 201720182019
Median price gains for Las Vegas homes in percent11.7%7.6%3.3%

Again, all this graph show is the median price of the homes sold and is affected mostly by homes sold in lower price ranges. So, it shows the market direction for that price range. Single-family houses that can be purchased by a conventional loan or a luxury home’s appreciation rate in percentage is not anywhere near those lower price ranges.

Price per square foot measures unit’s price gains and losses accurately

Now think about what the lowest common denominator of all homes sold in a month or year have in common? Just like gold which is measured in ounces or meat which is measured in pounds, home prices are measured by price per square foot. It shows bang for the buck and is the only way to compare custom homes.

If we add up the sales prices of all houses that have sold in a month or year and divide it by the total square footage, we arrive at the price per square foot ratio of all homes. And this is an exact benchmark that calculates unit price changes in a period or by price range.

Additionally, as we have explained in the Las Vegas high-rise condo market 2019, the median price fails miserably when data points are low. But the price per square foot works perfectly.

This graph shows the price per square foot of Las Vegas homes in the past 3 years.

Price per sqaure foot ratio of all homes sold is a much better benchmark for home price gains or losses

While the price per square foot graph is similar to the other graph, they are not the same. The price per square foot of single family homes stands at $172 per square foot and has not changed much in 2019. This table below shows the price per square foot gains from 2017-2019.

 201720182019
Price per square foot gains for Las Vegas homes in percent14.4%12%2.4%

While these numbers are close, they are not a match and only the second benchmark shows whether or not unit prices are up or down. Lastly, these graphs can be done for different price ranges and in that case, one can get a very close approximation for price gains or losses in that range.

Is median price the best benchmark to analyze housing market? was last modified: January 21st, 2020 by masouds

Comments 1

  1. Pingback: The best time to buy or sell homes in Las Vegas, video

Leave a Reply