How to Keep Up With 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 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 indexes will only provide repeat sales prices. The great majority of repeat sales indexes indicate that prices are once again beginning to rise. The median price revealed on Thursday, though, could suggest otherwise.

Here’s why it’s not the best idea to use the median home price as a barometer of what’s happening with home prices. The Wichita State University Centre for Real Estate Studies reports:

“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 costly property. Currently, more “less expensive” homes are selling, lowering the median price. However, this does not imply that anyone 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:

“Changes in the composition of sales can distort median price data.”

Here is a brief explanation of the median value for your reference:

• Three pennies 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 same thing applies to today’s real estate market.

To sum up

Most markets are seeing increases in actual property prices. The median number that is released tomorrow could reveal something different. Contact a local real estate expert for a deeper grasp of changes in property prices.