Median home prices hint at housing market’s direction
Median home prices, also noted by the NAR, can be a useful indicator of the direction of real estate markets, but this data must be analyzed with caution.
The median price is “in the middle” on a list of prices of sold homes. This means exactly half of the homes listed are above this price and exactly half are below.
While it may be tempting to track monthly or quarterly median prices trends, the only valid comparison is with the same time period a year earlier, according to NAR. That’s because sales and prices are affected by seasonality. Prices in December, when most housing markets are slow, aren’t comparable to prices in July, when markets are closing sales from the spring home-buying season.
Most housing markets are segmented by price bands. An entry-level condominium or small house isn’t comparable to a larger home or mansion. In some markets, high-priced homes are segmented into two markets: million-dollar and multi million-dollar.
These sub markets are important because median prices can be skewed by changes in the mix of homes sold. If an unusually large number of luxury homes sold in a specific area during a certain time frame, the median price might spike even if the overall level of prices was flat. Conversely, an unusually large volume of sales of lower-priced homes can cause the opposite effect.
Still, median prices can show the general direction, up or down, of housing market prices over time. This information can be helpful for buyers and sellers.
Buying when prices are rising can be frustrating. One challenge is that prices of recently sold comparable homes might not be a good indicator of current home values due to the rapid pace of home price appreciation. In a hot market, buyers will experience a lot of competition and will most likely need to make a bid above the asking price.
Falling prices enhance buyer purchasing power. You might be able to buy a larger or nicer home, or one in a more desirable location, for less than you would previously have paid.
Selling when prices are rising can be wonderful. You may be able to list for higher, or receive higher offers, than you expected.
Selling when prices are falling can be challenging. You’ll have to settle for less and price your home lower than the comparable sales data to avoid what’s often referred to as chasing the market down, with multiple price reductions as prices fall further.
|Median home price
||Impact for the buyer
||Impact for the seller
||Challenging, bids will most likely exceed asking price
||Good, can expect offers above asking price
||Good, more buying power
||Challenging, settle for lower sale price
NAR releases median price data quarterly for detached houses in approximately 175 metropolitan areas. Local Realtor associations and multiple listing services also release this type of data. The economists’ analyses and footnotes can contain important information about the statistics and what they mean.
In some cases, national and local data can vary dramatically due to differences in data collection methodologies. NAR advises its members that local data may be more relevant than national numbers.