Some Sources Say Home Prices Nationwide Drop While Others Tell Us Values Are Appreciating. Which Is It?

Today we’re talking about the conflicting information you may be hearing about home prices nationwide. Some are reporting the price of Existing Home Sales is down, which may seem a bit confusing considering up until this point, the data has been telling us home prices hit bottom months ago and are already rebounding. So why would some reports say prices are falling, and even provide percentages of decrease, when so many other price reports say prices are going back up?

Some sources report on the median home sales price, while other sources use repeat sales prices, and those two approaches differ. The Center for Real Estate Studies at Wichita State University explains median sales 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.”

Repeat sales calculate sales based on the same property, so depending on which method is used, the results can tell a very different story, and that’s why median home sales price data may say prices are down, even though the vast majority of repeat sales reports show prices are appreciating again. 

To drive this point home, here’s a simple explanation of median value. 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 individual coin didn’t change. 

To relate this to home values, let’s swap out nickels for lower-priced homes and dimes for more expensive homes. In Scenario 1, you have more expensive homes sold, so the median sales price lands with the more expensive homes. But in Scenario 2, there are lower-priced homes sold, so the median price is driven down, even though the individual homes’ values are the same.

So that’s why using the median home sales price as a gauge of what’s happening with home values may be confusing. 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, so when mortgage rates are higher, you may have to buy a less expensive home to keep your monthly housing expense affordable. That’s why a greater number of ‘less-expensive’ houses are selling right now – and that’s causing the median home sales price to decline. But again, that doesn’t mean any single house has actually lost value.

So if you see stories in the media that home prices are falling, remember the coins. Just because the median home sales 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.