Sellers what you need know about home prices
Boston Condos for Sale and Apartments for Rent
Sellers what you need know about home prices
The National Association of Realtors (NAR) will release its latest Existing Home Sales Report tomorrow. The information it contains on Seaport condo for sale prices may cause some confusion and could even generate some troubling headlines. This all stems from the fact that NAR will report the median sales price, while other home price indices report repeat sales prices. The vast majority of the repeat sales indices show prices are starting to appreciate again. But the median price reported on Thursday may tell a different story.
Here’s why using the median home price as a gauge of what’s happening with home values isn’t ideal right now. According to the Center for Real Studies at Wichita State University:
“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.”
People buy homes based on their monthly mortgage payment, not the price of the house. When mortgage rates go up, they have to buy a less expensive home to keep the monthly expense affordable. More ‘less-expensive’ houses are selling right now, and that’s causing the median price to decline. But that doesn’t mean any single house lost value.
Even NAR, an organization that reports on median prices, acknowledges there are limitations to what this type of data can show you. NAR explains:
“Changes in the composition of sales can distort median price data.”
For clarification, here’s a simple explanation of median value:
- You have three coins in your pocket. Line them up in ascending value (lowest to highest).
- If you have one nickel and two dimes, the median value of the coins (the middle one) in your pocket is ten cents.
- If you have two nickels and one dime, the median value of the coins in your pocket is now five cents.
- In both cases, a nickel is still worth five cents and a dime is still worth ten cents. The value of each coin didn’t change.
The same thing applies to today’s real estate market.
Boston Condos for Sale and the Bottom Line
Actual home values are going up in most markets. The median value reported tomorrow might tell a different story. For a more in-depth understanding of home price movements, let’s connect.
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If you’re trying to decide whether or not to sell your house, recent headlines about home prices may be top of mind. And if those stories have you wondering what that means for your home’s value, here’s what you really need to know.
What’s Really Happening with Home Prices?
It’s possible you’ve seen news stories mentioning a drop in home values or home price depreciation, but it’s important to remember those headlines are designed to make a big impression in just a few words. But what headlines aren’t always great at is painting the full picture.
While home prices are down slightly month-over-month in some markets, it’s also true that home values are up nationally on a year-over-year basis. The graph below uses the latest data from S&P Case-Shiller to help tell the story of what’s actually happening in the housing market today:
As the graph shows, it’s true home price growth has moderated in recent months (shown in green) as buyer demand has pulled back in response to higher mortgage rates. This is what the headlines are drawing attention to today.
But what’s important to notice is the bigger, longer-term picture. While home price growth is moderating month-over-month, the percent of appreciation year-over-year is still well above the home price change we saw during more normal years in the market.
The bars for January 2019 through mid-2020 show home price appreciation around 3-4% a year was more typical (see bars for January 2019 through mid-2020). But even the latest data for this year shows prices have still climbed by roughly 10% over last year.
What Does This Mean for Your Home’s Equity?
While you may not be able to capitalize on the 20% appreciation we saw in early 2022, in most markets your home’s value, on average, is up 10% over last year – and a 10% gain is still dramatic compared to a more normal level of appreciation (3-4%).
The big takeaway? Don’t let the headlines get in the way of your plans to sell. Over the past two years alone, you’ve likely gained a substantial amount of equity in your home as home prices climbed. Even though home price moderation will vary by market moving forward, you can still use the boost your equity got to help power your move.
As Mark Fleming, Chief Economist at First American, says:
“Potential home sellers gained significant amounts of equity over the pandemic, so even as affordability-constrained buyer demand spurs price declines in some markets, potential sellers are unlikely to lose all that they have gained.”
Boston Condos for Sale Bottom Line
If you have questions about home prices or how much equity you have in your current home, let’s connect so you have an expert’s advice.
