What You Need To Know About Home Price News
Tomorrow marks the release of the most recent Existing Home Sales Report from the National Association of Realtors (NAR). Its information on property prices could be confusing, and it might even lead to some unsettling headlines. All of this is due to the fact that NAR will only provide the median sales price report, whilst other home price indexes will only provide repeat sales prices. The vast majority of repeat sales indexes indicate that prices are once again beginning to rise. The median price revealed on Thursday, though, might indicate otherwise.
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.”
Instead of the house's price, people purchase homes depending on their monthly mortgage payments. In order to maintain an affordable monthly payment as mortgage rates rise, they must purchase a less expensive home. Right now, more "less expensive" homes are selling, which lowers the median price. But that doesn't imply that any particular house's worth decreased.
Even NAR, a company that publishes research on median prices, admits that the information you may get from this kind of data has some limitations. NAR clarifies:
“Changes in the composition of sales can distort median price data.”
For clarification, here’s a simple explanation of median value:
- You have three coins in your pocket. Line them up in ascending value (lowest to highest).
- If you have one nickel and two dimes, the median value of the coins (the middle one) in your pocket is ten cents.
- If you have two nickels and one dime, the median value of the coins in your pocket is now five cents.
- In both cases, a nickel is still worth five cents and a dime is still worth ten cents. The value of each coin didn’t change.
The same thing applies to today’s real estate market.
Actual home values are going up in most markets. The median value reported tomorrow might tell a different story. For a more in-depth understanding of home price movements, let’s connect.
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