When Is a 20% Drop in Average Prices Really a 0% Drop in Average Prices?

By
Real Estate Agent with Atlanta Communities Real Estate Brokerage GREC #208281

Market stats can be deceiving.  

Every month the MLS in Atlanta comes out with average home sales prices for the Atlanta metro area.  They are useful in general terms but let me show you how easy it is to get an entirely incorrect picture of what's going on in the Atlanta market.

Fulton county is in the middle of metro Atlanta and is a very long county.  It could take you one hour to drive from the south side to the north side.  Houses in the north part of the county might cost on average $500,000 while houses in the south part of the county might cost on average $200,000.

Here's a hypothetical situation with simple numbers to make the math easier.

10 sales at $500,000
10 sales at $200,000
= ave. price of $350,000

Next year the prices stay the same, total number of transactions stay the same, but the relative number of transactions changes in the two areas.

5   sales at $500,000
15 sales at $200,000
= ave. price of $275,000

The MLS would report that the average price of a home in Fulton county dropped 21.4%, from $350,000 to $275,000 and total sales remained constant at 20.

That would be an amazing number that would be reported in the newspaper.  If you are an agent you might recommend that a seller reduce their price, when in fact the only thing that has happened is that more homes sold in south Fulton than north Fulton.

I've spent many hours this week creating market reports that drill down to smaller market areas around Atlanta.  I've created average house price charts for specific areas going back to 2002 which show both price and volume.  I will start posting them in the next few days.

It has been really eye opening.  There are sections around Atlanta that have had average prices drop around 50% in the past year while other areas have remained level.  In general, the volume of transactions in the decreasing markets is increasing and the volume in the steady markets is declining significantly.  This explains why so many agents are hurting all over.  Prices in north Fulton are staying even but there are half as many homes selling.  In south Fulton, prices have plummeted and the number of transactions has increased.  This will skew the area wide numbers in a similar fashion as my simple example.

The bottom line is real estate is local.  Use national numbers with caution and also metro wide numbers with caution.  Know the big picture but also know what's happening in your very local area.

Posted by
About the Author:  Tim Maitski has been a full time Realtor since 1999. He has sold several hundreds of homes in areas around metro Atlanta.  Tim started with RE/MAX Greater Atlanta and is now with Atlanta Communities Real Estate Brokerage.

Along with blogging on ActiveRain, he provides one of the best real estate websites in Atlanta at www.HomeAtlanta.com where he has market price charts of 37 areas around Atlanta with data going back over 10 years.  His online Property Tax Calculator allows you to compare property taxes in many counties and cities around the Atlanta area.  He provides the Atlanta MLS Power Search Tool that allows searches of homes using over 35 specific criteria.

A visit to Tim's  YouTube Channel will make you see why RealtyBizNews.com says that "Tim Maitski may just be America' most vocal real estate professional"

Tim is always looking to LinkIn with anyone who is interested in building their social network.

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  1. Richard Rector 05/28/2009 01:46 PM
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Ambassador
883,219
Lane Bailey
Realtor & Car Guy
Century 21 Results Realty

Real estate isn't local... it is hyper local.  Even ZIP codes are too big in many places.  There are so many things to take into account... dollar volume, prices strata, activity at specific price points...  It would take a fuzzy computer to deal with it.  I guess we call that fuzzy computer an experienced real estate agent. 

May 29, 2009 11:05 PM
Rainer
213,039
Doreen McPherson
Phoenix Arizona Real Estate ~
Homesmart ~ Scottsdale ~ Tempe

This is so true.  In the city of Tempe there are areas that may average 100,000 or so and a mile or two away there are million dollar homes.  Then, everything in between that range in the same zip code.  I agree with the idea of keeping it very local. 

May 30, 2009 01:21 AM
Ambassador
1,200,689
Erica Ramus
MRE, Schuylkill County PA Real Estate
Erica Ramus - Ramus Realty Group - Pottsville, PA

A good example of how you can bend the numbers to prove whatever you want them to prove!

May 30, 2009 08:10 AM
Rainer
10,066
Dana Graham
DRE #00877973
Prudential California

Yup. I've been trying to get the media's attention on this for prox 18 mos.  In my market the # of lower end sales (Palos Verdes, CA, where low end is anything under $1 million) were up 28% a year ago, whereas the higher end (over $1.5 million) were down 58% 2009 vs 2008.  This led to (generally clueless) media to report stomach-churning drops in average (and median) prices, as you point out.

Today, because getting a high end loan is no longer analogous to a visit to your proctologist, the >$1.5 market is coming back (# of sales up 75% vs last year to date), which the lower end is holding steady so, as I predicated in last month's client newsletter, we will soon see reports of price increases simply due to the converse of what happened the last couple of years.  Doesn't mean any given house has gone up (or down), but it sure does mislead people, while giving the media what they want -- an attention-grabbing headline.

  

May 18, 2010 12:48 PM
Rainmaker
446,886
Tim Maitski
The Agent Who Uses "Watermelon Tough" Sign Posts
Atlanta Communities Real Estate Brokerage

Dana,  You're right.  They're just looking for a headline.  Explaining something like this is just too much work.  And people also just want a simple number they can use in calculations.

 

May 18, 2010 03:46 PM
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