What you need to know about home price news
Tomorrow, the National Association of Realtors will release their latest Existing Home Sales Report. The information on home prices could cause confusion and even lead to some disturbing headlines. This is because NAR will only report the median price, whereas other home price indexes will report repeat sales prices. The majority of repeat sales indices indicate that prices are beginning to rise again. The median price reported Thursday may tell a completely different story. The median home price is not the best way to gauge what’s going on with home values. The Center for Real Estate Studies of Wichita State University says: “The median sale price is the’middle price’ of homes that have sold. This means that half the homes sold for more and half for less. This is a good way to measure the average sale price but it’s not a very good way to measure home price appreciation. It’s affected by the composition’ of the homes that have been sold. For example, if there have been more recent sales of lower-priced houses, the median price will drop (because the middle home is now lower-priced), even if each home’s value is increasing. They have to purchase a cheaper home when mortgage rates rise to keep their monthly expenses affordable. The median price is dropping because more ‘less expensive’ houses are being sold. This doesn’t mean that any house has lost value. Even NAR, which reports median prices, admits that this type of information has limitations. NAR explains that “Changes in sales composition can distort the median price data.” For clarification, here is a simple explanation for median value: You have three coins in your wallet. Line them up from lowest to highest value.
If you have two dimes and one nickel in your pocket, the median value (the middle coin) is ten cents.
If you have two dime and one nickel, the median value is now five cents.
In both cases, the nickel still has a value of five cents. The dime still has a value of ten cents. The value of each coin did not change.
Bottom LineIn most markets, the actual home values are increasing. The median value reported today might not be the same as what is reported tomorrow. Contact a local real-estate professional to gain a deeper understanding of the home price movement.
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