What’s Really Happening with Home Prices?

Lately, you might have seen some news headlines suggesting that the “median” asking price of homes is falling, which can make it seem like homes are getting cheaper overall. However, this isn’t the whole story. It’s crucial to dig a little deeper to understand why, despite these headlines, the value of homes across the country is actually increasing.

Understanding Median Prices vs. Home Values

First, let’s clarify what median price means. If you line up all the homes for sale from the cheapest to the most expensive, the median price is the one right in the middle. This number can change based on what kinds of homes are selling.

Imagine you have three coins in your pocket—a nickel, and two dimes. You line them up by value from low to high. The median, the middle one, is 10 cents. If you have two nickels and one dime, the median is now five cents. In both cases, the value of each coin didn’t change, just like the actual value of houses doesn’t necessarily change even if the median price does.

This example shows how more smaller, affordable homes being sold can pull down the median price, but it doesn’t mean that the value of the homes themselves is decreasing.

Price Per Square Foot: A More Accurate Measure

A better way to understand home values is to look at the price per square foot. This measure shows you how much house you’re getting for your money. It’s a crucial indicator because it factors in the size of the home, helping to show the real value better than just the selling price.

Recent data indicates that the price per square foot is still on the rise nationally, meaning that the value per area of a home is increasing. Ralph McLaughlin, Senior Economist at Realtor.com, supports this view: “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 means that while smaller homes are affecting the median price, the average home’s value is still rising.

What This Means for You

The Federal Housing Finance Agency (FHFA) also affirms that home values are robust, stating: “Nationally, the U.S. housing market has experienced positive annual appreciation each quarter since the start of 2012.”

It’s easy to get caught up in headlines, but it’s important to understand the details behind the numbers. Whether you are buying or selling a home, or just interested in the market, you should focus on more reliable indicators like the price per square foot.

Conclusion

In summary, while median prices can give a quick snapshot of the market, they don’t always tell the whole story. For a more accurate picture of what’s happening with home values, look at the price per square foot. This measure helps you understand how much real value you are getting for your money.

Understanding these concepts can help you make more informed decisions in the real estate market, ensuring that you’re not misled by simplistic interpretations of complex data.

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Blog info and graphics pulled from Keeping Current Matters