Median Price is often confused for the value of homes.

Every month you will see a news story regarding what the median price of homes were for a region. By itself, the median price tells you nothing about your local real estate market, it is necessary to take median price along with other data points to determine the health of your market. For very stable markets you can maybe take median a bit more seriously since much of the underlying variability is removed, but for boom/bust markets such as California much more data is needed to see where the market is headed.

Median prices is simply the midpoint between which half the homes sold for more and half the homes sold for less. It is used instead of an average because abnormal outlying data points won't skew the data very much (a big mansion selling could skew the average for a whole region for example).

Median prices tell you nothing about what you get for your money. During early stages of housing booms the declining value for what people are getting for their money are masked by the median price. The same is true for early stages of busts, people start getting more for their money and it isn't reflected in the median for quite some time.

As lay persons it is harder to get good data on what is going on in a particular market, but here are the items to look that are generally available to the public (usually in a official press releases) without too much digging:

1. Sales Volume- By far the most important, the number of sales happening. It is vital to take these numbers in historical context, because any one Month-over-Month (highly variable due to seasonality) or Year-over-Year (better, but not perfect) comparison is highly suspect and won't show the trends nearly as well as a looking as much of the volume data that you can find.
2. Inventory- Usually the realtor groups won't say "There are X number of homes on the market", they instead take the current sales pace and divide the current inventory and give the data as months supply. Real estate agents often say that 6 months supply represents a balanced market.
3. Days on market (DOM)- Average of how long it takes to sell a home. This statistic is highly suspect in a slow environment, many times real estate agents will take a house off the market and bring it back on to "reset" the DOM and make the listing appear "fresh" to the general public. Or as things get really slow, the sellers switch agents and this has the same effect. The published DOM stat will start rising rapidly at the beginning of a downturn and slow as it nears an upper limit (usually between 90-120 days depending on the market). As it gets high it becomes pretty useless indicator until it starts dropping significantly.

Now you have four data points you can watch to judge your local area. It is quite possible to have a rising median, lower sales, rising months supply, and rising DOM (actually, this is often the case at the beginning of a downturn). People just watching the median would think the housing market is doing great, but sellers entering the market would be treated to a harsh reality and buyers a pleasant surprise.

With access to the MLS, you can get much better data. You can get the number of New Listings, Pending, Closed sales, Expired, and Back On Market (BOM, expired listings which decide to try again). The ratio of pending transactions to new listings and closed sales to new listings gives you a very good snapshot of the market. As you can guess, lots of expired listings tell you that the market is slow and that sellers and agents are having a hard time finding (or willing to accept) the market price.

Dataquick has the following to say about the median: "Movements in sales prices should not be interpreted as changes in the cost of a standard home. Median prices can be influenced by changes in cost, as well as changes in the characteristics and size of homes sold. Due to the low sales volume in some cities or areas, median price changes may exhibit unusual fluctuation."

In good times you can see a drop in median price that actually represents the start of a housing boom. A new lower cost housing development in a growing area can drag down median price, but watching sales volumes you will see a spike in volume. And when things slow as prices become unaffordable, there are fewer buyers and the few remaining are generally more affluent. As it takes some time for a bust to develop the median will usually lag significantly unless there is a large motivating force (layoffs for example).

To me, the median price represents what the median price a segment of buyers are willing to pay at a particular time. Without historical context and more data it is impossible to say if the median price represents a "good thing" or "bad thing" for the general housing market.