In truth there is nothing ‘wrong’ per-say with median home price statistics, just thought this title might be a bit more attention grabbing. 🙂
Nevertheless, I do feel consumers often times don’t completely understand what Median Home Prices actually reflect and how they can be utilized effectively.
Are Realtors® to Blame?
Sadly I think this is due to how Realtors® utilize this statistic, often presenting it out of context with the mainstream media just following along. Heck why not, their job is to simply quote their source and sadly its us; industry insiders.
Just take note of a couple of recent Headlines: Huntsville Home Prices Ease Up, Huntsville Home Prices Reflect Market on Upswing To be fair, when median home prices are provided there is almost always an explanation of what they are: ‘half of the homes sold for more and half sold for less‘, nonetheless often the implications are also clear. 🙁
Median Home Prices: What they are! – What they are not!
Median Home Price is a very useful statistic when used within a broad context and over a sufficient time-frame. Just note the useful information in the chart to the left comparing Huntsville and San Francisco home prices from their peaks in 2007 with 2010. It is not difficult to make sound and useful conclusions when median home prices are presented within context.
Also note the 10 year chart of Huntsville Median Home Prices above and ask yourself: Are Huntsville home prices rising? … Are they on the Upswing? Clearly the answer is: NO! However, flat Huntsville home values over the past 4 years is especially Good News when compared on a national level.
What Moves Median Home Prices?
Three underlying components are the primary movers of median home prices: Home Values, Market Mix, and Seasonality.
The 10 year chart above presents annual prices thus eliminates the seasonal component, but what happened in 2009 when local home prices declined -3%? This is a good example of market mix error, as 2009 was the year of the First Time Home Buyers Tax Credit, home values basically remained flat while all that actually occurred was we sold more lower priced homes to first time home buyers than a normalized distribution. That is all!
Closely Held Secrets?
I’ll let you in on a semi-secret; While its common knowledge that homes sales are very seasonal, i.e., more homes are sold in the spring and summer months than the holiday and winter months. However fewer folks understand that home prices often follow suite with slightly higher prices during the peak season and slightly lower in off season. Its just basic seasonal supply and demand.
Thus when reports of a steady increase in monthly home sales and median prices are reported from April – August, remember its simply normal and expected. This is an example of the seasonality error in the underlying components of median home prices.
Underlying Home Values are Dynamic
Flat median home prices doesn’t mean that underlying values are not necessarily moving, in fact they are, some market segments, locations, and price ranges can be moving downward and while others upward.
Thus if your are in the market as buyer or seller it is to your benefit to look very closely at these numbers in your neighborhood location and price range, and as always we are here to help, so don’t hesitiate to drop me an email or give me a call 256-425-1659.