Tomorrow marks the release of the most recent Existing Home Sales Report from the National Association of Realtors (NAR). Its information on home prices might be confusing, and it can 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 house price indices will only provide repeat sales prices. The great majority of repeat sales indices indicate that prices are once again beginning to rise. The median price revealed on Thursday, though, could indicate otherwise.
Here's why it's not the best idea at the moment to use the median home price as a barometer of what's happening with home prices. The Wichita State University Center for Real Estate Studies reports:
For instance, even if the value of each individual property is increasing, if more low-cost properties have recently sold, the median sale price would decrease (since the "middle" home is now a lower-priced home).
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 costly property. Right now, more "less expensive" homes are selling, which lowers the median price. However, this does not imply that anyone's home's value decreased.
Even NAR, a company that publishes research on median prices, admits that the information you may get from this kind of data has certain limits. NAR clarifies:
Here is a brief explanation of the median value for your reference:
- Three coins are in your pocket right now. Sort them from lowest to greatest value in a line.
- The median value of the coins in your pocket, if you have a nickel and two dimes, is ten cents.
- The median value of the coins in your pocket is now five cents if you have two nickels and one dime.
- A nickel still has a value of five cents and a dime still has a value of ten cents in both scenarios. Each coin's value remained unchanged. The current real estate market is no different.
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.