Making Sense of the Market: Key Takeaways from Home Price News
Tomorrow, the National Association of Realtors (NAR) will release its latest Existing Home Sales Report, which may lead to some confusion and potentially troubling headlines regarding home prices. This is because NAR reports the median sales price, while other home price indices focus on repeat sales prices. It's important to note that the majority of repeat sales indices indicate that prices are beginning to appreciate again. However, the median price reported by NAR on Thursday might present a different narrative.
Here’s why using the median home price as a gauge of what’s happening with home values isn’t ideal right now. According to the Center for Real Estate Studies at Wichita State University:
“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. While this is a good measure of the typical sale price, it is not very useful for measuring home price appreciation because it is affected by the ‘composition’ of homes that have sold.
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.”
The affordability of monthly mortgage payments plays a significant role in homebuying decisions. When mortgage rates rise, potential buyers may need to adjust their budget and consider purchasing less expensive homes to maintain affordability. As a result, there may be an increase in the number of lower-priced homes sold, which can cause a decline in the median price. However, it's important to note that this decline in median price does not necessarily indicate that individual houses have lost value.
Even NAR, an organization that reports on median prices, acknowledges there are limitations to what this type of data can show you. NAR explains:
“Changes in the composition of sales can distort median price data.”
Just as the value of each coin in your pocket didn't change in the examples given, the same principle applies to the real estate market. The median value, which represents the middle point of a data set, may change based on the mix of homes being sold. If there is an increase in the sale of lower-priced homes, the median price may decline, but that doesn't mean individual homes have lost value. Each home retains its own intrinsic worth, just like the coins in your pocket maintain their respective values regardless of their arrangement.
Absolutely, connecting with a real estate professional can provide you with a more comprehensive understanding of home price movements in your specific market. While the median value reported tomorrow may not reflect the overall trend of increasing home values, an experienced agent can analyze local data and provide you with accurate and relevant information. By discussing your specific needs and goals, they can help you make informed decisions regarding your real estate transactions.