Median prices suggest 9% annual growth while an analysis of resale pairs suggests 4%. Which is a plausible explanation to investigate?
Correct Answer
D) Changes in the mix of properties sold may affect the median trend
A changing property mix is one plausible explanation for median prices rising faster than matched resales. Repeat-sale evidence can also be affected by remodeling, depreciation, terms or nonmarket circumstances. Investigate both data sets and methods. Neither the higher estimate nor one method is automatically superior, and the discrepancy does not by itself prove an error.
Why This Is the Correct Answer
Option D is correct because a change in the mix of properties sold can push the median trend above the rate shown by matched resales of the same properties. Repeat-sale data can also be affected by remodeling, depreciation or nonmarket circumstances, so both data sets and methods deserve investigation.
Why the Other Options Are Wrong
Option A: The resale prices must contain recording errors, since paired resales are rare
Option A says the resale prices must contain recording errors because paired resales are rare, but the discrepancy does not by itself prove an error. Rarity of pairs does not make their prices wrong.
Option B: Median-based trends are more reliable than resale pairs
Option B says median-based trends are more reliable than resale pairs, but neither method is automatically superior. Median trends are vulnerable to mix changes, and resale pairs have their own limitations.
Option C: The larger 9% median-based rate must be selected for the time adjustment
Option C says the larger 9% median-based rate must be selected, but a higher estimate is not automatically correct. The time adjustment should rest on analysis of both data sets.
Same house, true trend
Resale pairs compare the same houses; medians compare whatever sold. When they disagree, check the mix first.
How to use: Use this when median trends and paired resale trends conflict.
Exam Tip
Answers stating that one figure must be chosen or must be wrong usually overstate what the evidence shows.
Common Mistakes to Avoid
- -Choosing the higher rate automatically
- -Assuming paired resale data must be wrong
- -Treating median-based trends as automatically reliable
Concept Deep Dive
Analysis
This question tests reasoning about two market-trend indicators that disagree. Median prices can rise faster than matched resales when the mix of properties sold shifts toward higher-priced homes. The candidate should choose a plausible explanation to investigate rather than an answer that assumes error or picks a method automatically.
Background Knowledge
Median price trends reflect both value change and changes in what sold, while repeat-sale analysis tracks the same properties over time. Different market segments can change in value at different rates, so trends should be examined by area and property type. Reconciling conflicting indicators requires investigating their data and methods.
Real-World Application
An appraiser sees median prices up 9% but repeat sales up only 4%. She finds that several new, larger homes sold this year, lifting the median. She bases her time adjustment on a careful review of both indicators instead of the median alone.
More Statistics Questions
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Compared with analyzing one matched sale pair for one feature, what can a suitably specified multiple regression do?
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Sale-price observations are $410,000, $280,000, $295,000, $310,000, $355,000, $300,000, $325,000, $290,000, $500,000. Compute the median; order the observations first and average the two middle values if n is even. Report to the nearest dollar.