There seems to be a dogma that has developed over the last year, that the mix of homes makes the median home price unreliable. The argument goes, high end homes aren't selling, which means the median is particularly low due to the mix of low end foreclosed homes.
I would imagine this is fairly accurate for coastal cities, like the S.F. Bay Area, L.A. and San Diego, where jumbo loans are regularly needed.
But I am not so sure how much this applies to Sactown and other central valley cities. For mix to matter, you have to have a lot of high end or very expensive homes. Currently, in ZipRealty, there are around 9013 SFH in the greater Sac Metro area listed for sale, less than 15% of those are listed for more than $550k.** Thus only 15% of homes would need a jumbo loan given my assumptions (below). While 15% is significant, it is not enough to drastically alter the median for Sacramento the way some suggest. Of course the mix argument can affect pricier local zip medians, where a larger percentage of jumbo loans are required.
As they say, all real estate is local.
**My assumption was that $521K is the selling price for a home listed at $550 or less, which allows someone to meet the conforming loan limit of $417k if they have 20% down payment. I don't know what the conforming loan limit is for Sac anymore, so I just used the standby.
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Well Median is used because it is better than Average. With average you could have expensive homes or cheap homes have too much influence on the number.
But median is a good measure. It is the midpoint of all the homes that sold and if higher end homes are not selling then they are obviously priced to high and must get lowered towards the median.
But it is not perfect. CR just posted that Sac median is at $160k. So half the homes are below that, but what is their quality. If it is an 800 ft2 dump in some ghetto then that is a lot different than the $250k home that is much larger and in a nicer area.
I prefer to look at price per square foot, but even that is not perfect.
But when I hear that Median prices don't matter all I can think about is how come everyone was cheerleading that stat when it was going up... Now that it doesn't suit their need it is flawed, but when it starts moving up again the NAR will be all over it as proof of a bottom...
"Now that it doesn't suit their need it is flawed, but when it starts moving up again the NAR will be all over it as proof of a bottom."
Ha ha so true. Yes, each metric has it's flaws. Hence, I try to look at several...
Thanks for the reality check.
I was just thinking about the median price IF the market was NORMAL and how many houses in each category would be selling and what influence the higher end would have.
With your assumptions, I have my answer. The numbers are where it is at.
Thanks again.
The conforming loan limit for Sac Metro is 474,950 based on what I can find from a 11/7/08 press release. Is this still the case?
hi -- i am writing a real estate story for sacramento magazine. can i contact you by phone in the next day or two for my piece? the focus is on buyers at this point.
thanks.
jan ferris heenan
jan@surewest.net
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