1. Imagine that on your way into a grocery store, the manager tells you that today’s median produce price is $1.50, which represents a year over year increase of 50%.
For the sake of simplicity, let’s assume that the store sells only 3 items: bananas ($0.20 each), apples ($1 each) and dragon fruits ($5 each). Apples would be the median-priced produce, as there are equal numbers of cheaper versus more expensive products.
$0.20 bananas, $1 apples, $5 dragon fruits = $1 median price
$0.05 bananas, $1.50 apples, $2 dragon fruits = much higher median price
If you were shopping for apples, the median price change would affect you greatly. But if you were interested in anything else, the median price might not have any relevance to your experience.
2. Suppose the grocery store manager says that the median shopper age at the moment is 20. You expect the store to be filled with college students, but instead, the one and only median-aged 20 year old is surrounded by equal numbers of toddlers and grandmothers.
3. Let’s say you ask every disembarking passenger at a bus stop how old he or she is. After surveying 50 people, you find that the median age of the group is 30. You repeat your survey the next day and the median age is 20.
Has the bus-riding public gotten younger overnight? Or could it be that the 100 people you spoke to don’t accurately represent the entire population of bus riders?
I HATE how readily everyone throws out median home prices or days on market in real estate discussions. It’s misleading!
Median is not an indication of what you’ll most likely encounter. I’m almost certain that you will NOT buy a house or sell your home at the median price after it’s been on the market for a median number of days.
Median shows you nothing more than what’s happening at the midpoint of the market. As with my grocery store example above, prices for waterfront mansions could completely tank even as median home values rise.
And most importantly, when all you have on hand is a small number of examples, knowing their median tells you nothing about the universe beyond your handful of examples.