The Residential Real Estate Crash Index Message Board

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Strategies & Market Trends : The Residential Real Estate Crash Index

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To: Lizzie Tudor who wrote (21236)	6/3/2004 11:11:57 AM
From: GraceZ	Read Replies (2) of 306849

Sometimes I find it difficult to believe you were a math major. Median and average have their limitations as statistics. They can absolutely be correct and misrepresent your experience or even the experience of most of the people you know. For instance almost everyone you know will live longer than average. The biggest difference between stocks and RE is that in the case of stock, every share of a company's stock (in the same class) is identical to every other share of stock. Houses with identical plans in different locations can have substantially different prices. Other than that difference, there is little difference in the way that they are priced, at the margin where transactions occur. If you have few transactions, be they high or low, this is how price is reported. If your friends sitting on 1.2 million dollar properties were willing to realize their loss and sell then they would contribute to the stats and bring down the average appreciation. It takes a transaction to effect the statistics. Meanwhile those houses which are selling significantly higher are effecting the median and average. Friends of mine bought a house in San Rafael for 300k in 1999, now it would sell for 650k. The reason they know this is because they've wanted to buy a nicer property and they find that they can't find anything nearly as nice at 650k. Houses in their neighborhood sell at or higher than 650k. Another friend in Novato bought a house in 2000 for 196k and it would now sell for 400k. All the houses on her street have the same plan, so she knows what the comps are. You may think that the "Bay Area" had nothing but million dollar houses in 2000, but I can assure you it did not. San Rafael and Novato aren't exactly what I'd call the hinterlands even if they might as well not exist to someone who never leaves SV. Your very specific area was bid up on a wave of easy stock option money, take that away and prices revert to the mean but only if those holding are willing to sell at a loss.

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