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Why the Median Home Price Is Meaningless in Today’s Market

The release of the National Association of Realtors’ (NAR) Existing Home Sales (EHS) report provides valuable insights into the sales volume and price trends for previously owned homes. However, it’s important to understand that the reported median home price may not accurately reflect the true state of the market. This can lead to confusion when other sources indicate that home prices are rising while the NAR report suggests a decline. In this blog post, we will delve into why the median home price can be misleading in today’s market and explore the significance of different methodologies used in price reports.

  1. The Difference Between Median and Repeat Sales Prices: The disparity in home price reports arises from the distinction between median sales price and repeat sales prices. The NAR report focuses on the median sales price, which represents the middle point where half of the homes sold for more and half for less. This metric is influenced by changes in the composition of homes sold, including factors such as location, size, and condition. On the other hand, repeat sales prices, used by some other sources, track the price change of the same properties over time, providing a more accurate reflection of market trends.
  2. Composition of Homes Sold: The composition of homes sold can significantly impact the median sales price. In a shifting market, the mix of properties sold can change, leading to variations in the reported median price. For example, if there is an increase in sales of lower-priced homes compared to higher-priced homes, the median price may decline, even if individual home values are actually appreciating. Conversely, if there is a surge in high-end home sales, the median price may increase, giving the impression of a rising market.
  3. Regional and Local Market Dynamics: Real estate markets are inherently local, and price trends can vary greatly from one region to another. The NAR report provides a national perspective, averaging data across various markets. However, market conditions can differ significantly at the local level. Therefore, relying solely on national median home price figures may not accurately reflect the dynamics of a specific area. It’s important to consider regional and local data for a more comprehensive understanding of price trends in your desired market.
  4. Considering Other Market Indicators: To gain a more comprehensive view of the real estate market, it’s crucial to look beyond the median home price. Factors such as inventory levels, days on market, buyer demand, and mortgage interest rates all play a role in determining market conditions. Monitoring these indicators, along with price reports that employ repeat sales prices, can provide a more accurate assessment of the market’s direction.

While the NAR’s median home price report provides a snapshot of sales prices, it’s essential to recognize its limitations in capturing the true state of the market. Understanding the difference between median and repeat sales prices and considering the composition of homes sold can shed light on why reports may diverge. To form a more informed opinion on market trends, it’s advisable to analyze a variety of indicators, including local data and other market factors. By taking a holistic approach, you can gain a clearer understanding of the real estate market in your area and make informed decisions regarding buying or selling a home.

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