The average (mean) and median are both measures of central tendency, but they are calculated in different ways and can provide different insights into a set of data.
Average (Mean): The average, or mean, is calculated by adding up all the values in a dataset and then dividing by the number of values. It’s sensitive to extreme values, also known as outliers. If there are a few very high or very low values in the dataset, the average can be significantly influenced by them.
Average=Sum of all valuesNumber of values
Median: The median is the middle value in a dataset when the values are arranged in numerical order. If there is an even number of values, the median is the average of the two middle values. The median is less sensitive to extreme values than the average, making it a robust measure of central tendency.
In the context of the average and median sales prices of homes over a 12-month period:
- If the average sales price is significantly higher than the median, it could indicate that there are a few very expensive homes in the market, skewing the average upward. This might suggest that the market has a segment of high-end properties that are influencing the average.
- If the median is higher than the average, it suggests that the distribution of sales prices is skewed towards the lower end. This could be indicative of a larger number of lower-priced homes in the market.
- If the average and median are close in value, it suggests that the distribution of sales prices is relatively symmetrical and not heavily influenced by extreme values.
Implications for the Real Estate Market:
- Average and median trends: Analyzing the trends in both average and median sales prices over time can provide a more comprehensive understanding of market dynamics.
- Income disparity: A significant difference between average and median prices may indicate income disparity or the presence of luxury properties that are impacting the overall average.
- Market segmentation: Understanding the difference between average and median prices can help identify different segments within the real estate market, such as a strong market for high-end properties or a market with a larger number of affordable homes.
- Investment considerations: For real estate investors, recognizing the difference between average and median prices is essential for making informed investment decisions. It helps in understanding the distribution of prices and potential areas for investment.
In summary, while the average and median are both measures of central tendency, they capture different aspects of a dataset. Analyzing both can provide a more nuanced understanding of the distribution of sales prices in the real estate market and help in making more informed decisions.