Home Values Rise Even as Median Prices Fall

Home Values Rise Even as Median Prices Fall

Recent headlines have been abuzz about the median asking price of homes decreasing compared to last year, which has led to a lot of confusion. As a buyer or seller, it’s easy to conclude that this means prices are falling. However, here’s the catch: those figures don’t provide the complete picture.

Nationally, home values are actually rising, even if the median price has dipped slightly. Let’s clarify what’s truly happening so you can understand the market without getting swept up in the fear generated by the headlines.

Homes on the Market Right Now Are Smaller

The primary reason for the dip in the median price is the size of the homes being sold. The median price represents the middle point of all the homes for sale at any given time, which is influenced by the mix of homes on the market.

To illustrate how this works, here’s a simple explanation of a median (see visual below). Suppose you have three coins in your pocket and line them up by value from low to high. If you have one nickel and two dimes, the median (the middle value) is 10 cents. However, if you have two nickels and one dime, the median shifts to five cents.

In both scenarios, a nickel remains worth five cents and a dime is still worth 10 cents. The value of each coin hasn’t changed, and the same principle applies to housing.

Currently, there are more smaller, less expensive homes on the market, which is contributing to the overall decline in the median price. However, this does not indicate that home values are decreasing.

As Danielle Hale, Chief Economist at Realtor.com, explains:

“The share of inventory of smaller and more affordable homes has grown, which helps hold down the median price even as per-square-foot prices grow further.”

And here’s the data to prove it. 

Price Per Square Foot Is Still Rising

One of the most effective ways to assess home values is by examining the price per square foot, as it indicates how much you’re paying for the space within the home.

The median asking price does not account for the size of various homes, so it may not always represent the true value. The latest national price per square foot data reveals that home values are still on the rise, even though the median asking price has decreased (see graph below).

As Ralph McLaughlin, Senior Economist at Realtor.com, explains:

“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 although smaller homes are impacting the median price, the average home’s value continues to increase. According to the Federal Housing Finance Agency (FHFA):

“Nationally, the U.S. housing market has experienced positive annual appreciation each quarter since the start of 2012.”

Therefore, even though headlines may suggest that prices are plummeting, there’s no need for concern. A closer examination of more reliable data reveals that prices are still rising nationally.

However, it's essential to keep in mind that home prices can differ by region. While national trends offer a broad perspective, local markets may be experiencing varying conditions. A trusted agent is your best resource for understanding what’s happening in your area.

Bottom Line

The decrease in median price does not equate to a decline in home values. The median asking price has dropped primarily because of the presence of more smaller, less expensive homes on the market.

What’s crucial to focus on is the price per square foot, which serves as a better indicator of overall market value—and those prices continue to rise. If you have questions about home prices in our area, don’t hesitate to reach out.