Homeowners have a seemingly insatiable
appetite for information about the housing markets. "Are prices going up How's
the market Is now a good time to sell" they ask. Research reports and
newspaper articles provide useful answers, but the information is usually buried
in economic jargon. What is a "median price" anyway What does "seasonally
adjusted" mean Does anyone understand "unsold inventory index"
To help you follow the numbers, here are
some helpful definitions:
Median price. An oft-cited
indicator of the strength and direction of a housing market, a median price is
the midpoint of all the prices of homes sold in a given area during a specified
period. Midpoint means half the homes sold for higher prices and half the homes
sold for lower prices. The median isn't the same as the average, which would be
calculated by totaling all the prices and dividing by the number of prices. The
median price can be affected over time by the characteristics and sizes of homes
sold as well as price trends. For example, if the market shifts from starter
homes to luxury mansions, the median price will increase even if homes are not
appreciating in value.
Seasonally adjusted. Housing
markets are naturally more active in the spring and summer months because people
prefer to move during the longer warmer days and between school years. That
pattern means it's difficult to make meaningful comparisons between results for
different months or quarters of the same year. To overcome this hazard,
economists statistically tweak the reported number of homes sold during various
periods to reflect seasonal variations. The tweaked numbers are denoted as
Price discount. The "price
discount" is the percentage difference between the seller's initial asking price
and the actual purchase price of the same home. For example, if a home were
priced at $200,000 and sold for $190,000, the discount would be 5 percent. Price
discounts are usually reported as an average for a set of home sale
transactions. A small percentage, on average, means the market favors sellers,
while a large average discount signals a buyer's market.
Unsold inventory index. This
index, which indicates the pace of the market, is calculated by measuring how
long it would take for all the homes currently on the market to be sold at the
current rate of sales. A smaller index is a positive sign for sellers, while a
higher number is good news for buyers.
Affordability index. An
affordability index measures whether a typical family can qualify for a standard
mortgage to purchase a typical home. A "typical" family is defined as one that
earns the median income in a given area, and a "typical" home is defined as a
median-priced single-family house in the same area. An index value of 100 means
a median-income family has exactly the amount of income needed to purchase a
median-priced home. A number higher than 100 means the family's income is more
than adequate, while a number less than 100 means the typical family can't
afford to buy the typical home.
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