Is “Average Asking Price” the Best Metric for Predicting Home Values?

Understand that "average asking price" is not the best metric for predicting home values.
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As local homeowners ourselves, we at Beverly-Hanks understand that affordability is an important and ongoing issue across Western North Carolina. Anytime we see people reference the “average asking price” of a community, we get concerned. That term dramatically overstates local market conditions for two reasons: one is the use of “asking price” as a value metric, and the second is the use of “averages” to describe the market.

Let’s take a deeper look at this terminology, as well as alternatives that better describe our local real estate market. We’re going to answer several common real estate questions in this post. By the end, we hope you’ll understand that “average asking price” is not the best metric for predicting home values.

What is Asking Price vs. Closed Sales Price?

“Asking price” is one metric to consider when analyzing a real estate market. However, it only describes the seller’s perception of what their property is worth. Most real estate professionals and home buyers would agree that sellers may initially perceive more value in their home than the market will bear. Thus, using “average asking price” to gauge home value trends leads to an inflated perspective of the market. 

Ultimately, it is the meeting of the minds between the buyer and seller that establishes true market value. For this reason, analyzing “closed sales price” is much more telling when attempting to gain insight into home price trends.

What’s the Difference between Average vs. Median in Real Estate Prices?

Since 2005, Beverly-Hanks has monitored the local real estate markets and produced a free Quarterly Market Report. The report dives deep into the region’s data and offers insights to real estate consumers on home values, sales pace, and the quantity of inventory currently on the market. Over time, we’ve found that “average sales price” can be a misleading metric to report. Although “average” is commonly used and well understood, “median” is a better tool to describe the “middle” value in a set of data. While the average and median can be the same, they are frequently different when more of the data are clustered toward one end of the range or if extreme values are present in the data set. In these situations, “median” gives a better representation of central tendency than “average”. 

At Beverly-Hanks, we track both average and median sales prices, but rely more heavily on median when offering insight on the direction of home values.

When examining the distribution of home sales across WNC in 2020, we learned that more than half of home sales occurred below $500,000. And only 14% of homes sold were priced above $1,000,000. The tendency of local sales data to cluster in the lower price brackets demonstrate the value of reporting on “medians” instead of “averages” since relatively few high-dollar sales will dramatically impact the average.

How do You Determine an MSA’s Closed Sales Price? 

One of the best tools to examine an area’s real estate market is the Federal Housing Finance Agency’s Home Price Index (HPI). The index measures price changes in repeat sales or refinancings on the same properties, making it one of the industry’s most reliable sources for gauging home value trends. The index does lag one quarter, but its accuracy is well worth the wait. 

The HPI reports that the Asheville MSA gained 5.8% appreciation from Q4 2019 to Q4 2020. This rate is consistent with historical trends. That means home prices are not shooting up faster than normal, despite common perceptions.

How does Beverly-Hanks Predict Home Price Trends?

Real estate professionals often use a metric called “months of inventory” (MOI) to describe the relationship between the number of homes for sale and how quickly those available homes are selling. The industry rule of thumb proposes that markets with 0–6 months of inventory will experience price increases, 6–12 months of inventory indicate a balanced market between buyers and sellers, and markets with more than 12 months of inventory will see downward pressure on home values. 

In Buncombe County, all price brackets except one ($900,000–$999,999; 8 MOI) had less than six months of inventory as of the end of 2020. We’ve reported low MOI across the region for some time, especially in brackets under $500,000, and most especially in affordable homes. This means that unless additional homes come on the market, prices will continue to increase. 

What’s the Best Way to Make Confident Real Estate Decisions?

Home affordability is an important issue across WNC. We also believe a thorough understanding of local real estate markets on a neighborhood level is essential before consumers can make informed and confident decisions. Nothing can replace the expertise of a knowledgeable and experienced real estate professional. 

Hopefully, you now understand the tenuous relationship between average asking price and home values. If you’d like to learn more about your neighborhood’s true real estate conditions, we can help. For a deeper analysis of the region on a county-by-county basis, review our Quarterly Market Report that analyzes 11 price points in each county.

Contact your Beverly-Hanks agent today to request the upcoming Q1 2021 Beverly-Hanks Real Estate Market Report.

All real estate is local. In order to make confident real estate decisions, it’s important to have timely and neighborhood-specific information. Contact us today to speak with a Beverly-Hanks real estate agent about buying homes and land in Western North Carolina. View all Beverly-Hanks real estate listings.

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