What Does Average Mean?
Why is this figure so important? What exactly is the average number? The average home price is determined by adding together all new home prices, in the US, for example, and then dividing by the number of homes counted to create the figure. This number is a valuable piece of information for a number of reasons.
First, for the individual it is a way to compare their home price to the national average of what new homes are going for, as well as to make a more realistic judgement about the expectations and value for the sale or purchase of a new home. Say for example, you paid $150,000 for your home, and the national average was $300,000. As long as you love your home you may feel that your locale's house prices are quite reasonable. You may also have trouble selling your home and moving to a more expensive region. If you purchased a moderately-sized home that needed renovations for $420,000, then you may realize that prices in your location are much higher than in other areas. What a great advantage when it comes time to sell your expensive home in the city to purchase an incredible house in the country and still have $100,000 left over! On the other hand, a price two to three times over the national average for a normal house may be an indicator that the value of the house could drop over time rather than increase.
The average house price, especially when compared to previous years, is very telling. Normally average prices go up each year, showing normal, steady growth. This number reflects what people are willing to and able to pay for homes. When the price increases drastically from one year to the next, this may signify inflated prices that could possibly drop just as quickly. Sharp declines may signify problems with the economy as people are not able to or willing to pay higher prices, nor sell for higher prices.