May 16, 2013 | by WBadmin
What do the numbers mean?
numbers, gay news, Washington Blade

(Image by Storyvillegirl via Creative Commons)

By TED SMITH 

If you’re paying attention to the real estate news, you’ve probably heard multiple reports about the numbers in April 2013 that indicate an improving real estate market: new listings are up 17.4 percent over April 2012, although active listings are still at a five-year low. Sales are up 13.7 percent, the median sold price is up 4.7 percent over last year to $470,000—the highest in five years, and the average sold price is up 4.6 percent to $551,214. Average days on the market (DOM) are down 37.3 percent to 42 days on the market and the average ratio of sold price to original list price (OLP) is at a five-year April high of 99.5 percent

But what do these measurements indicate and what do their values mean?

  • Active Listings indicate the number of available properties at any given moment.  This number has an inverse relationship to median sold prices and average sold home prices. Putting this relationship into a familiar concept–the law of supply and demand–you can state the relationship like this: When the supply of homes is high and demand is low, median prices and average prices are relatively low. These are the conditions of a buyer’s market.

    When the supply of homes is low and demand is high, median prices and average prices are relatively high. These are the conditions of a seller’s market. Right now, we are in a seller’s market in DC.

  • Median Sold Price indicates the middle value in the range of homes sold during a particular period.  The median is not the same as the average; it can be lower or higher than the average, depending on the number and size of the sales transactions being analyzed. The median tells us more about the number of transactions; the average tells us more about the size (value) of the transactions.
  • Average Sold Home Price indicates the total value of all sales transactions divided by the number of transactions.  As mentioned above, this can be higher or lower than the median. Rising sold home prices over an extended period indicate a seller’s market; falling sold home prices over an extended period indicate a buyer’s market.
  • Days on the Market indicate market conditions: When the supply of homes is limited (as in a seller’s market), homes tend to sell faster, so they are on the market for fewer days. When the supply of homes exceeds demand for them (as in a buyer’s market), days on the market will tend to increase.
  • Ratio of Sold Price to OLP (Original List Price) is also a good indicator of market demand. In a seller’s market, this ratio will tend to be high—in the 90’s—and may even exceed 100percent in a market where the competition for homes is especially fierce. In a buyer’s market, this ratio may dip below 90percent (or more) as sellers are forced to bargain more with buyers.

Having described what each of these categories indicates and how their values rise or fall depending on a particular market, let’s put them all together to see what their expected values would be in a seller’s market:

In a seller’s market:

  • Active Listings should be decreasing
  • Median Sold Price should be increasing
  • Days on the Market should be decreasing
  • Ratio of Sold Price to OLP (Original List Price) should be increasing
  • Average Sold Home Price should be increasing

In a buyer’s market:

  • Active Listings should be increasing
  • Median Sold Price should be decreasing
  • Days on the Market should be decreasing
  • Ratio of Sold Price to OLP (Original List Price) should be decreasing
  • Average Sold Home Price should be increasing

With a good understanding of what these categories indicate and the significance of each category (and how it might be tied to values in another category), you are ready to better understand the real estate news.

Ted Smith is a licensed Realtor with STAGES Premier Realtors specializing in mid-city D.C. Reach him at TedSmithSellsDC@stagesrealtors.com and follow him on Facebook.com/MidCityDCLife , Youtube.com/TedSmithSellsDC or @TedSmithSellsDC. You can also join him on weekly tours of open houses specifically geared toward first-time homebuyers. Sign up at meetup.com/DCMidCity1stTimeHomeBuyers/.

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