You Don’t Live in an “Average” House

Large House

One of the most quoted facts about the Greater Toronto Area (GTA) housing market is the “average selling price”. If you look at prices in 2018, you will see that the average selling price rose from $737,000 (rounded) in January to $797,000 (rounded) in September 2018. However, there are three surprises hiding within these numbers.
(Updated to September from the original publication date.)

Surprise 1

Surprised-1Let’s look at September in detail to see why. The exact, average selling price was: $796,786.
There were 6,455 homes sold in the Greater Toronto Area in September. Can you guess how many sold for $796,786?
None.
Yes, that’s right, none.
How, can that be? If there were 6,455 homes sold, wouldn’t you expect to find a lot, or at least some, that sold for the average selling price?
The answer is “no”.

The average selling price is just a math calculation of all the selling prices. Although there were 4 homes sold at the rounded selling price of $797,000, even the rounded price doesn’t represent the “average house”. This is the reason I can safely say you don’t live in the “average house” if you live in the GTA. Your home’s value is either above or below this average number. Thinking you live in an “average house”, using this number as your benchmark for value is not a good idea.

Surprise 2

Surprised-2The second reason for looking at these numbers is to see what is included in the average price. The answer is – all house types are included.

Q. How many are there?
There are nine house types and the result is a “composite” house type.

Q. What’s the problem with this?
Well, it is like saying the average price of vegetables this month is $3.43/lb.

This is misleading because you don’t compare the price of mixed vegetables when you are interested in carrots. (Or to use a fruit analogy you want “apples to apples” comparison.) To use a sports analogy, if you are a basketball fan, there is not much value in calculating the average height all team members for all the major professional Toronto sports teams (Blue Jays, Raptors, Maple Leafs, Toronto FC and Argonauts.)

So the average selling price of a composite house is a number that is composed of all the selling prices for all house types, just like mixed vegetables.

If you live in a detached house, you are far more interested in the selling prices of other detached houses in the GTA, not the selling price for all house types.

Surprise 3

Surprised-3The third reason the average selling price throws people off is the word “average”. We have a mental image of what “average” means. We tend to imagine what we believe is the average house type for the city. One person may assume the most common houses type is a semi-detached home and another person may imagine a condo apartment. Further complicating our understanding is that some people differentiate between houses and condos leading them to visualize a traditional, detached house as being the “average house” type.

Therefore we would be far better off leaving “average selling price” to economists and journalists who are commenting on high-level trends in the market rather using it for our own evaluation.

If you are really interested in how the current market is affecting your own housing situation, talk to a local realtor. As you know, there are a few of us around.

What are our thoughts or questions on the current market in the GTA?


* You may notice some Canadian spelling in these posts. The words may look odd but that’s how we spell them. We’re used to it.

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Quill pen

Author:
Unless otherwise credited, all posts are happily authored with a quill pen …
Paul Ferri, Broker, ASA (Accredited Senior Agent)
RE/MAX Unique Inc. Brokerage*, Toronto, Canada
*Each office independently owned and operated.

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