The How: The calculation for dollar volume is as simple as it gets. Just add up all sales prices for a selected geography and set of housing variables (e.g., Chicago, Condo; Minneapolis, single-family, 2 bedrooms).
It’s plenty interesting as a stand-alone figure, but a wise physicist once said that “everything is relative.”
It’s always beneficial to compare the dollar volume transacted in the current period versus the same period one, two or three years ago. If you go more than a few years into the past, consider adjusting for inflation.
The Oops: Dollar volume is occasionally mistaken for median or average sales price. They aren’t the same.
The vast majority of U.S. metros have a median or average price between $100,000 and $1,000,000. But most of those markets have a dollar volume between $100,000,000 and $10,000,000,000. Dollar volumes usually come with a few extra sets of zeros at the end.
The median shows the midpoint price where half the homes sold for more and half the homes sold for less. The average sums up all sales prices and then divides out by the number of sales. Dollar volume, however, sums up all the sales prices and stops there.
Not only is dollar volume distinct from median and average sales price metrics, it also does not necessarily move in tandem with either measure of central tendency. If the typical (i.e., median or average) home price is lower, it’s possible that more of those lower-priced properties sold, thereby boosting dollar volume.
Or, if the typical home price increased but fewer units sold, dollar volume would move lower, in contrast to either measure of central tendency.
The Beauty: Dollar volume is a good top-line measure of market activity. It’s a handy metric to use in business planning and elsewhere because it basically defines the size of the pie. Different agents and brokerages then carve out and grow their slice of the pie, but dollar volume essentially establishes how big the pie is, and that is critical.
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