The Difference Between Average, Benchmark, and Median Home Prices
If you’ve been following news of the GTA real estate market recently, you’ve probably come across a lot of seemingly conflicting terms and numbers.
Right now prices of homes are either stagnating (i.e. not growing the way they have historically) or declining. However, despite this, fewer people are buying because interest rates are rising to offset inflation, decreasing the average buyer’s buying power. Put another way, even though homes are getting cheaper, now even fewer people can afford them.
But it can be difficult to quantify just how much things are changing or in some cases, whether things are going up or down.
For example, if you look at reports on Toronto’s condo market, one eye-catching headline suggests that condo prices dropped $30,000 in a single month. But if you look at another report from WOWA, condos are the only category of homes in the Toronto that saw a year-over-year increase in price.
So, what’s going on?
The obvious difference in this case is the time frame. The report from WOWA cites figures from October 2022 and the increase is over prices from October 2021, whereas the initial headline is comparing September 2022 to August 2022
But perhaps more importantly, the first comparison is referring to benchmark prices while the second is referring to averages.
A benchmark price is essentially a prediction. It is set by an independent housing price index which determines the typical sales price of an ordinary property commonly found in a given area. Real estate agents often refer to when advising sellers who are setting their price, adjusting it up or down given the characteristics of the property being sold.
The benchmark price of a condo in Toronto in September 2022 was $1.16 million, down 2.5% from August (which is about $30,000).
Averages on the other hand refer to actual sales, a simple calculation where all the sales prices are added up and divided by the total number of sales. The average price of condo in Toronto in October 2022 was $717,000, up slightly from the same time last year. According to the same report, average home prices overall (which includes condos, towns semis, and detached homes) dropped 6%, with detached homes falling 11% over the previous year to an average of $1.37 million.
However, averages are sometimes misleading. If, for example, a higher number of more expensive homes or lower-priced homes are sold in a period, the average might not be representative of the price of most homes sold during that period.
This is when the median becomes a useful point of reference. If you were to take all the sales in a given time period and put them in a list from lowest to highest, the median price would be the price value that lands right in the middle. If the median and average are totally different, the median may be a more representative figure since it helps you control for outliers which pulls the average up or down.
Navigating the housing market is never easy, but it can be especially difficult in times like these. If you’re thinking of buying or selling your home, our experts can help you find the home or the buyer that’s right for you for the right price. Get in touch today.
