Are home prices going up or down? The confusion stems from how data is measured. Get ready to demystify this trend!
In the realm of real estate data, understanding why one report indicates falling home prices while another claims they're surging can be perplexing. The National Association of Realtors (NAR) is preparing to unveil its Existing Home Sales (EHS) report, and you might be surprised to learn that it might suggest a decline in home prices. This apparent contradiction can be bewildering, especially if you've been keeping up with the narrative that home prices have reached their lowest and are rebounding. So, how does this puzzle come together?
It all boils down to the methodologies used by different sources. NAR focuses on the median home sales price, whereas other analyses employ the repeat sales approach. Let's unravel the distinction.
Imagine you have a handful of coins – some nickels and some dimes – and you arrange them in ascending order of their values. The median value is the one in the middle. Now, if the mix changes, the median shifts. For instance, if more lower-valued coins are added, the median value decreases, even if the value of each individual coin remains unchanged. This is akin to the median home sales price. If more affordable homes are sold, the median price drops, yet the actual value of homes hasn't diminished.
Contrastingly, the repeat sales approach tracks price changes based on the sales of the same property over time. It sidesteps the challenge of factoring in price differences due to varying property characteristics.
The nuanced disparity between these methodologies is what can lead to varying conclusions. Although the median home sales price might suggest a decrease, the majority of repeat sales reports affirm that prices are indeed appreciating once again.
In the words of Bill McBride, the mind behind Calculated Risk blog:Copy code
“Median prices are distorted by the mix and repeat sales indexes like Case-Shiller and FHFA are probably better for measuring prices.”Bear in mind the ultimate goal: understanding how home prices trends influence your homebuying decisions. Most buyers assess home prices in relation to their budgets, and affordability often steers the purchasing choice. When mortgage rates rise, opting for a more affordable home may be the key to maintaining a reasonable monthly housing expense.
Therefore, the apparent drop in the median home sales price is primarily due to a surge in the sale of 'less-expensive' homes. It's a reflection of market dynamics, not individual property devaluation.
As the media buzzes with headlines about falling prices, remember the coin analogy. A change in the median home sales price doesn't equate to a market-wide price plunge. It signifies the shift in the composition of homes sold, guided by affordability and current mortgage rates.
In Summary: To master the intricate dance of home price trends and reports, connect with us. Our expertise will help you decipher the complex world of real estate data and make informed decisions.
