What You Need To Know About Home Price News

What You Need To Know About Home Price News

The National Association of Realtors (NAR) is set to release its latest Existing Home Sales Report, which may lead to confusion and potentially alarming headlines regarding home prices. The confusion arises from the fact that NAR reports the median sales price, while other home price indices report repeat sales prices. This discrepancy can create a different perception of home price trends.

Using the median home price as a measure of home values is not ideal at the moment, as explained by the Center for Real Estate Studies at Wichita State University. The median sale price represents the middle price of homes sold, with half selling for a higher price and half for a lower price. However, this measure is not reliable for gauging home price appreciation because it is influenced by the composition of the homes sold. If a larger number of lower-priced homes have recently sold, the median sale price will decrease, even if the value of individual homes is actually increasing.

Homebuyers typically base their purchase decisions on their monthly mortgage payment rather than the overall price of the house. When mortgage rates rise, buyers may need to purchase a less expensive home to maintain an affordable monthly expense. Currently, more affordable homes are being sold, leading to a decline in the median price. However, this does not mean that any individual house has lost value.

Even NAR, an organization that reports on median prices, recognizes the limitations of this type of data. They acknowledge that changes in the composition of sales can distort median price data.

To simplify, consider a pocket with three coins: one nickel and two dimes. The median value of the coins in your pocket is ten cents. If you switch to two nickels and one dime, the median value becomes five cents. However, the value of each coin (nickel or dime) hasn't changed. This analogy applies to the current real estate market.

In summary, actual home values are generally increasing in most markets, but the median value reported may tell a different story. For a more comprehensive understanding of home price movements, it is recommended to seek further insight by connecting with a real estate professional.