Housing charts and reports often show an average home price. This page looks at one such average, published in the National Mortgage Database (NMDB®) of the Federal Housing Finance Agency (FHFA): what it measures, which homes its home-purchase figure covers, and why an average is not the middle price. It describes how a publisher prepares a figure; it is not about any law or rule, and it has no data figures in it: no prices and no counts.
One measure, published for several groups of mortgages
In its New Residential Mortgage Statistics, FHFA publishes a measure it labels the average purchase price or appraised value. The measure describes the home, not the mortgage taken out on it. FHFA publishes it for all new first-lien mortgages together and, separately, for parts of the mortgage market that it defines, such as home purchases only and refinances only. Each group has its own average, so the average for all mortgages together is not a home-purchase figure.
What the home-purchase average covers
The home-purchase average is the one that describes homes bought with a mortgage. Three limits apply to it:
- · It covers home purchases only. Mortgages that replace an existing mortgage belong to FHFA's separate refinance figures.
- · It covers closed-end, first-lien mortgages, the ones holding the first claim on a home.
- · The database holds mortgages, so homes bought with cash are not in it at all.
In short, the home-purchase average describes homes that were bought with a new mortgage, not every home that changed hands.
Estimated from a sample
The database is a sample, not a full count: FHFA draws one mortgage in every twenty from those reported to one of the national credit bureaus, and each sampled mortgage stands for twenty. Each average is therefore an estimate, published in thousands of dollars and rounded to the nearest thousand.
FHFA notes that some mortgages, such as those taken out by investors and those for manufactured homes, are not as well represented in the sample.
How an average is made
To make an average, add up every price in the group and divide the total by the number of homes in it. Each home counts once, so each price has a say in the result.
An average, not the middle price
The middle price is a separate measure, often called the median: line the prices up in order and take the one in the middle. The FHFA figure is an average, not a median.
The two can part ways. A small number of very expensive homes adds a great deal to the total, so they can lift the average while the middle price stays almost where it was. Two groups can even share an average yet have different middle prices.
Each measure answers its own question. Before you set two home prices side by side, check whether each is an average or a middle price, which homes it covers, and which period it describes.
Where to go next
The Sources list below links FHFA's own definitions. Preliminary, revised and estimated explains what an estimate built from a sample is, how to read our housing charts walks through the source line on a chart, and our property search is open whenever you want to look at homes.
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