Princeton real estate home prices, as reported by national press and media, could mean very little for home sellers and buyers. The basic question/concern Princeton real estate home sellers have is what is their home worth. Could you as a home seller assume that if the average prices are down/up nationally, or in New Jersey, or in Princeton, that your home is respectively worth less/more by the same percentage? And what about the median home prices? What is difference and which is a better indicator of what is going on in the Princeton real estate market?
Unfortunately, there is little clarity about Princeton real estate prices. Neither of these statistics provide a reliable indicator of the local housing prices trends in Princeton as well as the surrounding communities? Let’s examine some of the reasons.
I. Real estate is “micro local”
You can’t apply the national or even New Jersey state real estate statistics to Princeton. Even more so, the aggregate Princeton sales prices may not apply to your home. The condition of real estate varies not just from town to town, but also in different price ranges, in different Princeton neighborhoods and developments, and in single homes vs. condominiums.
II. What are Median and Average Home Sales Prices
Let’s start by looking at the difference between the median and the average prices and what it means when it comes to real estate. Many buyers and sellers ask me about this difference. Interestingly, many real estate agents ask me to explain the difference to them as well. Let’s refresh the definitions. Here is an example given by Dr. Math .
“The MEAN is the arithmetic average, the average you are probably used to finding for a set of numbers – add up the numbers and divide by how many there are:
(80 + 90 + 90 + 100 + 85 + 90) / 6 = 89 1/6.
The MEDIAN is the number in the middle. In order to find the median, you have to put the values in order from lowest to highest, then find the number that is exactly in the middle:
80 85 90 90 90 100
since there is an even number of values, the MEDIAN is between these two, or it is 90. Notice that there is
exactly the same number of values ABOVE the median as BELOW it!”
For Princeton real estate this means median prices and average prices could be different. For towns, neighborhoods, and housing developments where homes are priced within a small range, these differences could be insignificant. For example, if you have 5 Princeton homes similarly priced $1,000,000; $1,100,000;$1,050,000; $1,025,000; $1,090,000 the average price is $1,053,000. Median Price would be $1,050,000 ( with two homes below this price and two homes above this price) which is very close to the average.
When the prices for homes for sale vary greatly, as is the case in Princeton and many surrounding towns, there would be a significant difference between the homes median and average sales price. For example, if there were 5 Princeton homes sold and priced $500,000; $700,000; $1,300,000;$1,500,000; $3,000,000 -the average price is $1,400,000 and the median price is $1,300,000.
III. Problems with Princeton real estate average and median home prices
1. Median and average prices could be different, as explained above.
Median home price in Princeton Township (excluding condos) in 2006 was up 23%, while the average price was up was up only 9% compared to 2005.
2. Median and average prices could be moving in opposite directions.
Princeton median home price (excluding condos) in 2006 was down 6%, while the average price was up 18% compared to 2005. In 2007 the situation reversed. The median price was up 10% and the average price down 12%.
3. How to male sense of the numbers
The way to understand Princeton real estate average and median prices is to know the underlying series, i.e. individual transactions that went into calculating these prices. Competent Princeton real estate estate agent should be able to do it. The reason the average and median prices are not reliable indicator of how they affect the price of your home is because they do not track the sale of the same properties over years, but rather represent prices of the mix of the homes for sale during a particular period. If more expensive homes where sold year #1 compared to year #2, the prices would be higher. Yet the price of a home sold in year #1 could be less then in year #2. It is this change that is most meaningful. Unfortunately, such tracking does not exist for Princeton.
IV. Reporting of real estate homes sales prices
1. The available data may not be meaningful.
For Princeton real estate buyers and sellers it’s important to understand what is being reported. The most meaningful way to understand real estate prices is based on the Case-Shiller index, because it tracks sales of the same properties over the years. This index is not updated as often as home sales prices, so real estate reports in the press are often based on the average and median prices, which could often be meaningless, as shown in the example above. Unfortunately, the Case-Shiller index does not cover many areas in the country and does not cover Princeton. Applying real estate trends and statistics reported by the national press for Princeton homes for sale could produce very misleading results. Even when local statistics are available, they have to be understood on a deep level by those offering them, so they could offer appropriate guidance to the home sellers and buyers who rely on them for making decisions regarding their homes.
2.Tracking statistics on a deep level is a complicated and time consuming.
Many real estate agents simply use reports provided by MLS which are based either on median or average prices for a municipality. These prices are not enough to understand the “micro local” trends. To truly understand the trends in the Princeton real estate prices the agents need to know and understand the individual transactions that go into the aggregate statistics reported by the MLS.
V. Who is doing the reporting
1. Press and media reporting.
If the goal of the press is to generate sales for their reporting -the more dramatic the headlines, the better are the chances for the story to generate interest. If I was reporting on the condition of the Princeton real estate in 2006 I could choose either of these headlines: “Median prices are in decline after 2005 highs” or “Average home prices in Princeton rise dramatically while falling everywhere else”. Both of the statements would communicate the factual data while delivering the opposite messages. This could be totally misleading for the general public and to the agents who do not do independent research.
2. Real estate agents’ reporting.
If the real estate agents’ motivation is to sell homes, the statistics could be used to further this goal. While the agents are supposed to provide factual data, the example above shows how easy it would be to spin the story based on one’s motivation. The key here is to find a good Princeton agent who will cut out the spin. You already found one here:)
Not ready to discuss your plans with a real estate agent yet? You could learn a lot on your own, by reading:
Who else wants clarity about Princeton real estate prices?
Princeton Homes Buyers’ Tips
Princeton Homes Sellers’ Tips
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