Context Matters: Exploring Why the Median Home Price Doesn't Reflect the Reality of Today's Market

When analyzing the housing market, it's important to consider the context behind the median home price and understand its limitations in reflecting the true dynamics of the market.

The National Association of Realtors (NAR) will release its latest Existing Home Sales (EHS) report later this week. This monthly report provides information on the sales volume and price trend for previously owned homes. In the upcoming release, it’ll likely say home prices are down. This may feel a bit confusing, especially if you’ve been following along and seeing the blogs saying that home prices have bottomed out and turned a corner.

So, why will this likely say home prices are falling when so many other price reports say they’re going back up? It all depends on the methodology of each report. NAR reports on the median sales price, while some other sources use repeat sales prices. Here’s how those approaches differ.

The Center for Real Estate Studies at Wichita State University explains median prices like this:

The median sale price measures the ‘middle’ price of homes that sold, meaning that half of the homes sold for a higher price and half sold for less . . . For example, if more lower-priced homes have sold recently, the median sale price would decline (because the “middle” home is now a lower-priced home), even if the value of each individual home is rising.”

Investopedia helps define what a repeat sales approach means:

Repeat-sales methods calculate changes in home prices based on sales of the same property, thereby avoiding the problem of trying to account for price differences in homes with varying characteristics.”

The Challenge with the Median Sales Price Today

As the quotes above say, the approaches can tell different stories. That’s why median price data (like EHS) may say prices are down, even though the vast majority of the repeat sales reports show prices are appreciating again.

Bill McBride, Author of the Calculated Risk blog, sums the difference up like this:

“Median prices are distorted by the mix and repeat sales indexes like Case-Shiller and FHFA are probably better for measuring prices.”

To drive this point home, here’s a simple explanation of median value (see visual below). Let’s say you have three coins in your pocket, and you decide to line them up according to their value from low to high. If you have one nickel and two dimes, the median value (the middle one) is 10 cents. If you have two nickels and one dime, the median value is now five cents.

In both cases, a nickel is still worth five cents and a dime is still worth 10 cents. The value of each coin didn’t change.

That’s why using the median home price as a gauge of what’s happening with home values isn’t worthwhile right now. Most buyers look at home prices as a starting point to determine if they match their budgets. But, most people buy homes based on the monthly mortgage payment they can afford, not just the price of the house. When mortgage rates are higher, you may have to buy a less expensive home to keep your monthly housing expense affordable. A greater number of ‘less-expensive’ houses are selling right now for this exact reason, and that’s causing the median price to decline. But that doesn’t mean any single house lost value. 

When you see the stories in the media that prices are falling later this week, remember the coins. Just because the median price changes, it doesn’t mean home prices are falling. What it means is the mix of homes being sold is being impacted by affordability and current mortgage rates.

Bottom Line

For a more in-depth understanding of home price trends and reports, let’s connect.

1352 Properties
Page 1 of 113
Open 3/3
1 Colony Point Dr #9B Punta Gorda,  FL 33950
$415,000
Neighborhood: Colony Point
2
Beds
2
Baths
1,581
Sq.Ft.
1972
Year Built
1
Day on Site
C7480014
MLS
$275,000
Neighborhood: Islander Point
2
Beds
2
Baths
1,114
Sq.Ft.
1974
Year Built
1
Day on Site
C7488913
MLS
$329,000
Neighborhood: Charlotte Ranchettes
3
Beds
2
Baths
1,739
Sq.Ft.
2024
Year Built
1
Day on Site
C7488958
MLS
Open 3/3
4284 Manatee Ln Punta Gorda,  FL 33980
$324,900
Neighborhood: River Club
3
Beds
2
Baths
1,756
Sq.Ft.
2021
Year Built
1
Day on Site
D6135243
MLS
$320,000
Neighborhood: Windmill Village
2
Beds
2
Baths
1,568
Sq.Ft.
2004
Year Built
1
Day on Site
C7488839
MLS
Open 3/3
25301 Big Leaf TERRACE Punta Gorda,  FL 33955
$509,000
Neighborhood: Heritage Lndg Ph Ii-A
2
Beds
2F11/2
Baths
1,850
Sq.Ft.
2023
Year Built
1
Day on Site
T3507920
MLS
$299,900
Neighborhood: Babcock National
2
Beds
2
Baths
1,194
Sq.Ft.
2022
Year Built
1
Day on Site
C7487435
MLS
$435,000
Neighborhood: Punta Gorda Isles Sec 20
3
Beds
2F11/2
Baths
2,345
Sq.Ft.
2005
Year Built
1
Day on Site
C7488681
MLS
$350,000
Neighborhood: Punta Gorda Isles Sec 20
3
Beds
2
Baths
1,832
Sq.Ft.
1993
Year Built
2
Days on Site
C7488760
MLS
$725,000
Neighborhood: Punta Gorda Isles Sec 11
3
Beds
2
Baths
2,140
Sq.Ft.
1981
Year Built
2
Days on Site
C7488847
MLS
$369,999
Neighborhood: Waterford Estates
2
Beds
2
Baths
1,510
Sq.Ft.
2018
Year Built
2
Days on Site
C7488808
MLS
$339,900
Neighborhood: Creekside Ph 3
4
Beds
2
Baths
1,686
Sq.Ft.
2014
Year Built
2
Days on Site
O6181183
MLS

Post a Comment