Home Values Rise Even as Median Prices Fall

Home Values Rise Even as Median Prices Fall

Recent headlines have stirred up confusion by reporting that the median asking price of homes has dropped compared to last year. As a buyer or seller, you might assume that home prices are falling. But here's the key: those headlines don't tell the full story.

In reality, home values are rising on a national scale, even if the median price appears to be down. Let's take a closer look at what's really going on so you can navigate the market confidently and avoid the panic the headlines can create.

Homes on the Market Right Now Are Smaller

The drop in median price is largely due to the types of homes being sold. The median price represents the midpoint of all homes for sale, which is influenced by the mix of properties on the market.

To explain how a median works, imagine lining up three coins based on their value. If you have one nickel and two dimes, the median is 10 cents. But if you have two nickels and one dime, the median drops to five cents. Similarly, the median home price can shift depending on the size and value of the homes being listed.

In both scenarios, the value of the nickel and dime remains the same—five cents and ten cents, respectively. The same principle applies to housing. 

Currently, there are more smaller, less expensive homes on the market, which lowers the overall median price. However, that doesn't indicate that home values are dropping. 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 accurate ways to gauge home values is by looking at the price per square foot, as it reflects how much you're paying for the actual space inside the home. The median asking price doesn’t account for variations in home size, which can lead to a misleading picture of overall value.

Recent national price-per-square-foot data reveals that, even though the median asking price has dipped, home values are still rising. This shows that the price per square foot is a more reliable indicator of market trends. (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 while the increase in smaller homes on the market is bringing down the median price, the average home's value is still going up. 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, while headlines may give the impression that prices are plummeting, you can rest assured that home values are still on the rise nationally. However, it's crucial to understand that real estate is highly local. While national trends offer a broad perspective, the conditions in your specific area may differ. That's why working with a trusted agent who knows your market is key to understanding what's really happening where you live.

Bottom Line

The drop in median price doesn't necessarily mean home values are falling. It's primarily due to an increase in the number of smaller, more affordable homes being sold. The key metric to watch is the price per square foot, which gives a clearer picture of true market value—and those numbers are still rising. If you're curious about home prices in our area, feel free to reach out for more insights!