Statistics are regularly misquoted, misinterpreted and misunderstood. They are not really "facts" but more generalities and it's important to know what a statistic actually means within overall market conditions and what its limitations are. Below are some of the main statistics we use in our analyses of prices, values and supply and demand in the San Francisco residential real estate market. In real estate, the devil is always in the details, and the market context behind a statistic is as important as the statistic itself. It should also be remembered that median and average values often disguise an enormous disparity of values among the underlying individual home sales in the data set, and how these general statistical values apply to any particular property is impossible to say without a specific comparative market analysis (CMA).
If a significant market trend is developing, it will be reflected over the longer term and across a wide variety of different statistical measures.
If a significant market trend is developing, it will be reflected over the longer term and across a wide variety of different statistical measures.
MEDIAN SALES PRICE is that price at which half the home sales occur for more and half for less. If there is an odd number of sales, then the median price will be the sales price of the middle sale, even if that middle price is nowhere close to the middle value: for example, you have three sales of $1, $2 and $10 -- the median sales price is $2. If you have an even number of sales, the median price is the middle point between the two middle-most sales. As you can see, as is almost always the case with statistics, small data sets or data sets filled with widely varying data points (such as all the different homes in Pacific Heights, for instance) can generate misleading statistics, especially over the short term. Median price can be, and often is, affected by other factors besides changes in market values, such as short-term or seasonal changes in inventory or buying trends. The median sales price for homes (in all their infinite variety) is not like the price for a share of company stock (all the same), and monthly fluctuations in median price are generally meaningless. If market values are truly changing, the median price will consistently rise or sink over a longer term than just 2 or 3 months, or even 2 or 3 quarters, and also be supported by other supply and demand statistical trends.
AVERAGE SALES PRICE is calculated by adding up all the sales prices and dividing by the number of sales. It is different from median sales price, but like medians, averages can be affected by other factors besides changes in value, such as fluctuations in average unit size. Averages may also be distorted by a few sales that are abnormally high or low, especially when the number of sales is small. Average sales prices are usually higher than median sales prices, as averages are more affected (or distorted) by high-price sales. (Generally speaking, high prices can go much higher than the norm than low prices can go lower than the norm.)
DAYS ON MARKET (DOM) are the number of days between a listing going on market and accepting an offer. The lower the average days on market figure, typically the stronger the buyer demand and the hotter the market. Note that this statistic is easily distorted by distressed home sales, which often have a very high DOM; by that minority percentage of listings that sell after multiple price reductions (one property that sells after being on the market for 12 months can sometimes play havoc with an overall average for a neighborhood); and by deals that fall through after offer acceptance (the listings come back on market and perhaps sell quickly, but the DOM clock keeping ticking throughout). Currently, appealing, well-priced new listings often accept offers within 7 to 14 days of coming on market.
MONTHS SUPPLY OF INVENTORY (MSI) reflects the number of months it would take to sell the existing inventory of homes for sale at current market conditions. The lower the MSI, the stronger the demand as compared to the supply and the hotter the market. Typically, below 3-4 months of inventory is considered a "Seller's market", 4-6 months a relatively balanced market, and above 6 months, a "Buyer's market." However, note that there are different ways of calculating this statistic, by closed sales, by listings going into contract, looking just at the context of one month's inventory and activity, or looking at current inventory against the sales rate over an entire year.
DOLLAR PER SQUARE FOOT ($/sqft) is based upon the home’s interior living space and should not include garages, unfinished attics and basements, rooms built without permit, outdoor space, patios and decks -- though all these can still add value to a home. These figures are usually derived from appraisals, architectural plans, condo maps or tax records, but can be calculated in different ways, are sometimes unreliable or unreported altogether. Generally speaking, about 60-80% of listings report square footage and dollar per square foot averages are calculated on these listings alone. All things being equal, a house will sell for a higher dollar per square foot than a condo (due to land value), a condo higher than a TIC (quality of title), and a TIC higher than a multi-unit building (quality of use). Everything being equal, a smaller home will sell for a higher $/sqft than a larger one. (However, things are rarely equal in real estate.) There are often surprisingly wide variations of value within neighborhoods and averages may be distorted by one or two sales substantially higher or lower than the norm, especially when the total number of sales is small. Location, condition, amenities, parking, views, lot size & outdoor space all affect $/sqft home values. Typically, the highest dollar per square foot figures in San Francisco are achieved by penthouse condos with utterly spectacular views in prestige, doorman buildings and by mansions in the best locations of the most prestigious neighborhoods.
PERCENTAGE OF LISTINGS ACCEPTING OFFERS (aka GOING UNDER CONTRACT) is one of the purer statistics of supply and demand: it reflects the level of buyer demand as compared to the available inventory of homes to purchase. It is also one of the most up-to-date statistics because the heat of a market is really reflected in the time period when new listings are coming on market and offers are being made, negotiated and accepted, while sold data is only available 4 to 10 weeks after that critical time. The higher the percentage of listings going under contract within a given time period, the stronger the market.
DISTRESSED HOME SALE can be one of two things: the sale of a bank-owned property typically pursuant to a foreclosure (also called an REO sale), or a so-called short sale, in which the seller-owner must get lender approval for a "short" payoff, a reduction in the loan amounts due on the property in order for the sale to close. These 2 kinds of distressed sale are actually different animals, though both can be long, tiresome endeavors to close because one is dealing with bank bureaucracies. However, in an REO sale, the seller is the bank (which may own hundreds or thousands of these properties), the property often looks "distressed" and the bank has very limited disclosure responsibilities (which is a liability to buyers). In a short sale, the seller is usually the individual owner-occupier, the property condition is and shows much better, and full seller disclosure laws apply (the buyer knows more about what he or she is buying). Both types of distress sale can be very good deals for savvy buyers and indeed investors are buying many of the REO properties around the country. But there are potentially greater risks and almost always much greater aggravation involved.