I’m getting ready to write a bunch of statistics heavy posts about San Francisco real estate performance by neighborhood from 2009 to 2010. The other day I shared my feelings about the price per square foot metric, and today I wanted to do a quick backgrounder on the three types of averages, and why I’ve selected the median average as the number I’ll be showcasing in coming days.
If we can get past the questionable earring in the above image, it’s a pretty useful illustration of the the differences between the three calculations.
The mean is calculated by adding up all of the numbers in your data set and dividing them by the number of items in the data set. In the example above, there are 9 items in the data set. The mean is 15.
The mode is the number that is most common in your dataset. For example, in the above example the mode is 13 because that number occurs four times, more than any other number in the dataset.
The median average is the middle number in the data set, with half of the numbers being less than the median and half being higher. In our example above, 14 is the middle number because there are four numbers that are equal to or less than 14 (13, 13, 13, 13) and there are four numbers that are equal to or higher than it (14, 16, 18, 21).
The median average is often used because it isn’t skewed by extremes at either end of the scale, and reflects the price at which half of the homes sold for more and half of the homes sold for less. So it gives us a good idea of where the middle of the market is. It is frequently used in real estate statistics, and we will be using it as we look an San Francisco neighborhood performance.