Well…actually…you shouldn’t be using median sales prices.
In a market like this, median values are virtually meaningless. They have “no importance or value”. As evidence, I give you the Center for Real Studies at Wichita State University’s analysis of median sales prices:
“The median sale price measures the ‘middle’ price of homes that sold, meaning that half of the homes sold for a higher price and half sold for less. While this is a good measure of the typical sale price, it is not very useful for measuring home price appreciation because it is affected by the ‘composition’ of homes that have sold.
For example, if more lower-priced homes have sold recently, the median sale price would decline (because the ‘middle’ home is now a lower-priced home), even if the value of each individual home is rising.”
Their example is this market exactly: more lower priced homes are selling.
Home values have actually increased month-over-month in almost every re-peat sales index over the last nine months (ex. Case Shiller, FHFA, Freddie Mac, Black Knight, CoreLogic).
To drive this point home, here’s a simple explanation of median value (see visual below). Let’s say you have three coins in your pocket, and you decide to line them up according to their value from low to high. If you have one nickel and two dimes, the median value (the middle one) is 10 cents. If you have two nickels and one dime, the median value is now five cents.
In both cases, a nickel is still worth five cents and a dime is still worth 10 cents. The value of each coin didn’t change.
That’s why using the median home price as a gauge of what’s happening with home values isn’t worthwhile right now. Most people buy homes based on the monthly mortgage payment they can afford, not just the price of the house.
When mortgage rates are higher, you may have to buy a less expensive home to keep your monthly housing expense affordable. A greater number of ‘less-expensive’ houses are selling right now for this exact reason, and that’s causing the median price to decline. But that doesn’t mean any single house lost value.
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