If you were to break down the overall U.S. economy into a pie chart, you would see that the housing market makes up one of the largest pieces of the pie. In fact, housing makes up approximately 16-18% of GDP, second only to healthcare. Understanding this dizzyingly complex topic at the national scale might require a PhD in economics, and so for the rest of us, let’s look at this at the more manageable local level. This is much easier to grasp, and is certainly more relevant to the everyday homeowner. Today, I want to focus on one of the metrics that will help best illustrate this point. Let’s talk about the median sales price, how it’s measured, how it changes from one area to the next, and what it tells us about each individual market.
To start with, we should first clearly draw the distinction between the average sales price and the median sales price. These two metrics are often conflated, but can be drastically different because they’re calculated differently. The average gives us a useful snapshot of the market, but can be heavily influenced by just a few extremely high or low sales in the area. This is most noticeable in smaller neighborhoods where there are fewer sales. So, if there are only 15 sales in the neighborhood in a month, but one or two of them are luxury homes, their very high price relative to the rest of the market can throw off the average to make it significantly higher than it otherwise would have been. Median, on the other hand, is much more stable. It truly represents the middle of the market, meaning that 50% of homes sold for less than the median, and 50% sold for more. For that reason, in today’s commentary, we will focus on the median sales price.
As I said, the median represents the middle of the market, so measuring it is quite simple. Looking at the total list of sales for any given period of time, the lowest sale is at the bottom and the highest is at the top. We want to look at the exact middle, and this gives us a good way to measure the trends as it moves from month to month, and year to year. We can look at this across the Phoenix Metro Area, and that gives us a large, more macro data point. It can be helpful if we’re talking about the broader Phoenix housing market, but it’s too wide in scope for this chat today. We can narrow further to individual cities and it becomes more useful, as some cities are considerably more expensive than others. Zoom in further and we find ourselves at the level of the zip code. The zip codes 85383 and 85345, for example, are both in Peoria, but 85383 has a median sales price of $665,000, whereas 85345 is only $352,000. So again, the more local we get, the more useful the information.
This is about the point where some might stop and feel that they had gotten close enough. However, if we are to understand a specific community, or even a certain type of house or floor plan within that community, we need to yet again dive deeper.
The communities of Northlands and West Wing both have a median sales price above the zip code of 85383. Both communities follow a similar yearly trend to the surrounding zip code, and we can plainly see that the median sales price today is at or above the peak of 2022. If you look at individual sales, however, there are some floor plans that were selling in the mid $800,000 range back in 2022 that are now selling for $650-$700,000. This is, again, why we say that real estate is HYPER-local, because the granular data gets lost in the general data. When pricing a house, we take all of it into account, but the more narrow the lens, the more accurate the value.
So, why does this all matter to you, our reader? Because everyone who owns a home cares most about their home and their investment. The data that nerds like me talk about every day might help give you a baseline understanding of “the market”, but it’s still not the whole picture. Every homeowner has their very own housing market, and it’s made up of other homes like theirs within their own community. The data is most relevant when directly applied, and so I’ll wrap it up by saying as I always do. If you’re considering selling your home anytime in the near future and would like to discuss your specific situation, please give me a call. I’d love to talk nerdy with you :)