What You Need To Know About Home Price News

The National Association of Realtors (NAR) has released its latest Existing Home Sales Report today. The information it contains on home prices may cause some confusion and could even generate some troubling headlines. This all stems from the fact that NAR reports the median sales price, while other home price indices report repeat sales prices. The vast majority of the repeat sales indices show prices are starting to appreciate again. But the median price reported on Thursday may tell a different story. 

Here’s why using the median home price as a gauge of what’s happening with home values isn’t ideal right now. According to the Center for Real Estate Studies at Wichita State University:

“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.”

People buy homes based on their monthly mortgage payment, not the price of the house. When mortgage rates go up, they have to buy a less expensive home to keep the monthly expense affordable. More ‘less-expensive’ houses are selling right now, and that’s causing the median price to decline. But that doesn’t mean any single house lost value. 

Even NAR, an organization that reports on median prices, acknowledges there are limitations to what this type of data can show you. NAR explains:

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

For clarification, here’s a simple explanation of median value:

• You have three coins in your pocket. Line them up in ascending value (lowest to highest).
• If you have one nickel and two dimes, the median value of the coins (the middle one) in your pocket is ten cents.
• If you have two nickels and one dime, the median value of the coins in your pocket is now five cents.
• In both cases, a nickel is still worth five cents and a dime is still worth ten cents. The value of each coin didn’t change.

The same thing applies to today’s real estate market.

Bottom Line

Actual home values are going up in most markets. The median value reported today might tell a different story. 

NJ Market:

The challenge with supply and demand continues to impact home prices in NJ as we move further into the 2023 spring market.  Sellers are continuing to receive multiple offers on their properties; however, the market is showing a slight shift in buyer activity as economic challenges continue to limit affordability due to home price appreciation, inflation and mortgage rates.  As properties under contract start to close across Essex, Morris, Somerset and Union counties, it is expected that we will continue to see slight price increases over the next couple months with transit-oriented towns seeing the biggest gains.  Looking to buy or sell?  For a more in-depth understanding of home price movements in specific towns, let’s connect.