What’s Really Happening with Home Prices?
Lately, you may have noticed headlines about the median asking price of homes dropping compared to last year, which has stirred up some confusion. If you're a buyer or seller, you might be wondering if this means home values are actually falling. But here's the twist: those numbers don’t tell the whole story.
Home Values Are Rising, Despite a Lower Median Price
Nationally, home values are continuing to increase, even if the median price shows a slight decrease. Let’s dive into why that is, so you can understand the market without getting swept up in the sensational headlines.
The Homes for Sale Are Smaller
A big reason for the drop in median price is simply due to the types of homes currently available. The median price reflects the middle point among all listed homes at any given time, which can vary based on the kinds of homes on the market.
Here’s an example of how the median works. Imagine you have three coins of different values. If you line them up in order, the middle coin represents the median value. Now, if you switch one of the coins for a smaller one, the median drops, even though the values of individual coins haven’t changed. The same goes for housing: a larger number of smaller, more affordable homes in the mix can bring the median price down without affecting the value of each home.
As Danielle Hale, Chief Economist at Realtor.com, says:
“The share of inventory of smaller and more affordable homes has grown, which helps hold down the median price even as per-square-foot prices grow further.”
The Real Value: Price Per Square Foot is Increasing
To get a clearer view of home values, looking at the price per square foot is often more revealing. This metric reflects what you’re paying for each square foot of space, giving a better indicator of true value. The latest national data shows that price per square foot is still rising, despite a dip in the median asking price.
As Ralph McLaughlin, Senior Economist at Realtor.com, explains:
“When a change in the mix of inventory toward smaller homes is accounted for, the typical home listed this year has increased in asking price compared with last year.”
This suggests that while smaller homes are affecting the median price, the value of the average home is still climbing. The Federal Housing Finance Agency (FHFA) adds:
“Nationally, the U.S. housing market has experienced positive annual appreciation each quarter since the start of 2012.”
So, despite what headlines may imply, home prices aren’t crashing. A closer look shows that home values are rising on a national level.
Home Prices Vary by Region
It’s important to remember that while national trends can provide a general picture, housing markets can differ significantly by location. For local insights on what’s happening in your area, it’s best to connect with a knowledgeable real estate agent.
A lower median price doesn’t necessarily mean home values are falling. It’s more reflective of a current trend toward smaller, more affordable homes. The key metric to focus on is price per square foot, which is still on the rise. If you have questions about what this means for home prices in your area, a local real estate agent can provide you with the latest market insights tailored to your region.