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There are two major ways in which aggregate home prices
are reported: median and mean (average). Prices are also
calculated by square foot, using both the mean and median price.
Real estate prices have had a profound impact on urban, as well
as the suburban and rural landscape. The most important government
measurement of home prices in the United States is the house price
index. Median house prices are reported for metro areas and regions
of the country by the private National Association of Realtors.
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Median home price:
The median home price is the threshold
which divides the real estate market into two equal halves, in reference
to pricing. One half of all homes in the market are priced above
the median home price, while the other half are priced below it.
For example, the median home price in the United States was $213,900
in the fourth quarter of 2005, meaning that half of all homes in
the US were priced above $213,900, and half were priced below $213,900.
In California, the median home price was $548,000.
The median home price is one of the
most common measurements used to compare real estate prices in different
markets, areas, and periods. It is said to be less biased than the
average since it is not as heavily influenced by the top 2% of homes.
For example, the average home price in the US was $264,000 in October
2005, compared with a median home price of $213,900 for the same
time period.
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Mean (average) home price:
The mean home price, or average home
price is the sum of all home prices in a certain area, divided by
the number of properties in the same area. For example, inside the
Willowood Townhouse complex in Salinas, California, there were five
townhouses for sale in March of 2006. The properties were priced
as follows: one for $450,000, one for $459,000, two for $465,000,
and one for $499,000. The sum of all of these properties is $2,338,000.
This number is then divided by five, which equals $467,600. Thus,
the mean home price for a townhouse inside Willowood was $467,600
in March 2006.
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Per square foot pricing:
In per square foot pricing, the total
price or rent of a unit is divided by the square footage of the
unit.
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