The Mystery of the Median Price

Although I track weekly median sales prices, looking at it by itself is, in and of itself, pointless. It is a short period of time with few sales. Using it to watch and track trends has merit but it is the more important year-to-date, year-over-year and quarterly numbers that are more telling.

It becomes difficult and inaccurate when evaluating a low number of sales. For example, take the number of sales in Hope Ranch in 2006. In Hope Ranch, “there were only sixteen sales all year (2006), and only thirty-one in 2005, including that fifty-million-dollar sale on Roble Drive, and the twenty-two-point-five-million-dollar sale on Llano Avenue,” says Mark Schniepp, the director of California Economic Forecast. “But nevertheless, the sample size is much too small to make anything out of the high variance from year to year regarding the median price.”

Adrienne Schuele, a Coldwell Banker Realtor, offers her Hope Ranch statistics that she compiled from the Santa Barbara Multiple Listing Service, CORT and the Hope Ranch Association:

Median Sales Price in 2005: $2.7 million

Median Sales Price in 2006: $2.61 million

Highest Sales Price in 2005: $50 million (Multiple Lots Involved)

Highest Sales Price in 2006: $ 7.7 million

Lowest Sales Price in 2005 Sold for: $1.42 million

Lowest Sales Price in 2006 Sold for: $1.8 million

Santa Barbara real estate is doing well despite the fact that 2006 saw an end to double-digit appreciation. Properties priced well were able to sell and multiple offers occurred often enough in 2006 to keep real estate agents on their toes. I do not hear anyone predicting anything particularly negative in their real estate crystal balls, so sit tight and enjoy the sky that is not falling.

However, I wouldn’t read too much into the fact that the median sales price in Montecito was up in 2006 over 2005. Sure, it is better than dropping, but do not interpret it to mean that the value of your property increased. Do not forget that the number of Montecito single family sales dropped 18% from 2005 to 2006. That compares to the overall 15.6% drop in sales from Carpinteria to Goleta.

“The median selling value was up nine-point-eight percent, and it [Montecito] was the only sub-market in which the median was higher in 2006 than in 2005,” Schniepp says. “But here again, we have one hundred sixty-eight sales and many were very, very high end, dragging up the median value.”

Those 168 sales in 2006, Schniepp says, was the second lowest number since 1995, after 2001, the year of the last recession and the year of 9/11. “There were twelve percent more new listings and the median list price was seven percent higher in 2006, indicating that sellers have not yet learned the true value of their homes yet,” Schniepp goes on. “Consequently, they suffered tremendously because homes did not sell.”

Schniepp concludes with the impact of the high-end: “As I’ve said (and others have said), bubbles resolve themselves initially with a decline in transaction volume. In real estate, values don’t fall that much. In the case of Montecito, the market is correcting, but it’s being confused by the very high end of the market that is attracting buyers who are price insensitive. Remember, the rest of the economy is actually doing well, meaning that affluence is not being impacted much. High-rollers still have lots of money to buy expensive homes. And the stock market was up sixteen-point-three percent last year.”

Notice he said “bubbles resolve themselves.” The term ‘bubble’ is more trouble than it is worth as most of the prognosticators do not want to claim we were, are or have ever been in a bubble that burst. For Santa Barbara (yes, and Montecito) real estate, I agree with leaving the term ‘bubble’ to the tulip business.

To remove the impact of the upper end sales in Montecito, I compared only 2005 to 2006 sales that were under $2.47 million and found that the 2006 median price in that price range was down 1.7% – close enough to call it even. This is better than Santa Barbara’s overall drop of 5% (not counting planned unit developments) but if you pulled out the higher end Santa Barbara sales, you would find different results as well. The number of Montecito sales in that range dipped 20.9%.

Many Realtors compile and provide similar information or utilize statistics supplied by the Santa Barbara Multiple Listing Service.

You can attend the California Economic Forecast Conference on February 22 at Fess Parker’s DoubleTree Resort and hear Schniepp, David Lereah, chief economist for the National Association of Realtors and Realtors Steve Golis, Bob Tuler, Dan Encell and Bruce Fisher.

For ticket information visit www.californiaforecast.com or call 969-5244.