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Minnetonka Home Sales Prices Surge Illusion

Looking at a recent copy of the Minneapolis Area Association of REALTORS’ market update for Minnetonka you will see a stunning figure: Minnetonka’s median home sales price is up an astounding 8% versus last year and the average sales price is still showing a healthy 5% increase over last year as well.  Sounds like prices in Minnetonka are heading up right?  Not so fast….

I am a huge numbers geek and while most of the time averages are a good way to understand an overall trend, in times of great flux they can often mislead you on the true market trend.  I’m going to break down why this is the case in Minnetonka but there are many other examples that could be made of this effect.

Minnetonka’s median sales price chart is very impressive in how the prices plummeted and then strongly bounced back:

(images courtesy The Thing from MAAR)

What has really changed in the last 12 months is not the prices on Minnetonka homes, but rather the mix of Minnetonka homes for sale that are actually selling:

In the last year substantially fewer homes sold in the lower 1/2 of the home price bracket in Minnetonka than they did the year before, while the upper 1/2 of homes have maintained relatively flat sales activity for the last three years.  Looking further, 2009′s surge of sales in the lower price ranges actually account for a substantial amount of the Minnetonka median sales price decline seen in the chart above!

The lesson here is that averages do not always tell the story right and it is important to look beyond the headline numbers to really understand what is going on in the market.

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  1. [...] numbers is the middle number when the numbers are arranged in order from least to greatest). While averages and medians are certainly helpful in summarizing large quantities of data, they do not always tell the whole [...]

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