Recent headlines are buzzing about a drop in the median asking price of homes compared to last year, leading to some confusion. As a buyer or seller, it’s tempting to think prices are falling, but here’s the thing: those figures don’t paint the whole picture.
On a national level, home values are still increasing, despite a slight dip in the median asking price. Let’s take a closer look at what’s really going on in the market.
Homes on the Market Right Now Are Smaller
The main reason for the drop in median price is the size of the homes being sold. The median price represents the midpoint of all homes for sale at a given time, and it’s influenced by the variety of properties available on the market.
Here’s a simple way to explain how the median works (see visual below). Imagine you have three coins in your pocket, and you arrange them by value from lowest to highest. If you have one nickel and two dimes, the median—the middle value—is 10 cents. But if you have two nickels and one dime, the median shifts to five cents.
In both examples, the nickel remains worth five cents and the dime stays at 10 cents. The value of the coins hasn’t changed. The same principle applies to the housing market.
Currently, there are more smaller, lower-priced homes on the market, which is lowering the overall median price. However, this doesn’t indicate that home values are actually 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
A great way to gauge home values is by examining the price per square foot, as it reveals how much you’re paying for the space within the home.
The median asking price doesn’t factor in the varying sizes of homes, so it may not always accurately represent true value. In fact, recent national data on price per square foot shows that home values are still rising, even though the median asking price has declined (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 indicates that although smaller homes are impacting the median price, the average home’s value continues to rise. 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.”
So, 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 on a national level.
However, it’s crucial to keep in mind that home prices can differ by region. While national trends offer a broad perspective, local markets may be facing distinct conditions. A reliable agent is your best resource for understanding what’s happening in your area.
Bottom Line
A decline in the median price does not equate to a decrease in home values. The drop in the median asking price is primarily attributed to the prevalence of smaller, lower-priced homes on the market.
The key metric to pay attention to is the price per square foot, as it serves as a more accurate indicator of overall market value—and those prices continue to rise. If you have any questions about home prices in our area, don’t hesitate to reach out.
