Existing Home Sales Report
The National Association of Realtors is set to release its most recent Existing Home Sales report tomorrow. This monthly release provides information on the volume of sales and price trends for homes that have previusly been owned. In the upcoming release, it will likely say home prices are down. This may seem a bit confusing. If you have been following along and reading the blogs saying home prices have hit the bottom and have since rebounded you may be confused.
So, why would this say home prices are falling when so many other price reports say they are going back up? It all depends on the methodology of each one. NAR reports on the median home sales price, while some other sources use repeat sales prices.
Different Approaches and How They Differ
“The median sale price measures the ‘middle’ price of homes that sold. This means that half of the homes sold for a higher price and half sold for less.
“Repeat-sales methods calculate changes in home prices based on sales of the same property. This avoids the problem of trying to account for price differences in homes with varying characteristics.
The Challenge with the Median Home Sales Price Today
As the quotes above say, the approaches can tell different stories. That’s why median home sales price data like EHS may say prices are down. However, the vast majority of the repeat sales reports show prices are appreciating again.
“Median prices are distorted by the mix and repeat sales indexes like Case-Shiller and FHFA are probably better for measuring prices.” (source: Bill McBride, author of the Calculated Risk blog)
Here’s a simple explanation of median value….
That’s why using the median home sales price as a gauge of what’s happening with home values may be confusing right now. Most buyers look at home prices as a starting point to determine if they match their budgets. But most people buy homes based on the monthly mortgage payment they can afforrd, not just the price of the house.
That’s why a greater number of ‘less expensive’ houses are selling right now. And, that’s causing the median home sales price to decline. But that doesn’t mean any single house lost value.
Bottom Line
For a more in-depth understanding of home price trendss and reports, give me a call.
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