The housing market has been a hot topic of conversation over the past year, with record-low mortgage rates and a pandemic that has caused many people to reconsider their living situations. As a result, home prices have been steadily increasing. However, the National Association of Realtors (NAR) will soon release their monthly Existing Home Sales (EHS) report, which may indicate a decline in home prices. This may seem confusing, especially if you’ve read other reports claiming that home prices are on the rise. In this blog post, we’ll explore why this discrepancy exists and what it means for the housing market.
The NAR’s EHS report provides information on the volume of sales and price trends for homes that have previously been owned. This report is based on the median home sales price, which can differ from other reports that use repeat sales prices. The difference in methodology is important to note because it can produce varying results. For example, the NAR’s report may indicate a decline in home prices, while repeat sales reports may show that prices are appreciating.
So, why the difference in results? The Center for Real Estate Studies at Wichita State University explains that median home sales price data may skew the results because of the types of homes being sold. In other words, a greater number of “less-expensive” homes may be selling at a lower price point, causing the median home sales price to decline. However, this doesn’t necessarily mean that any individual home has lost value.
“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 . . . 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.”
The same idea is echoed by Bill McBride, author of the Calculated Risk blog. He explains that a nickel is still worth five cents, and a dime is still worth 10 cents, regardless of which coins are being used. In the case of the housing market, the value of each individual home hasn’t necessarily changed, but the types of homes being sold can affect the overall median home sales price.
“Median prices are distorted by the mix and repeat sales indexes like Case-Shiller and FHFA are probably better for measuring prices.”
It’s also important to note that the NAR’s EHS report is just one of many housing reports that are released each month. It’s important to take a holistic view of the market and consider other reports, such as those based on repeat sales or housing inventories. While the NAR’s report may indicate a decline in home prices, other reports may show a different trend.
So, what does all of this mean for the housing market? While it may seem contradictory to read reports of both rising and falling home prices, it’s important to remember that the market is complex and multi-faceted. The NAR’s EHS report is just one piece of the puzzle, and it’s important to consider other reports and factors when analyzing the market. Additionally, a decline in home prices may actually be beneficial to some buyers who have been priced out of the market in recent years.
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 a greater number of ‘less-expensive’ houses are selling right now – and that’s causing the median home sales price to decline. But that doesn’t mean any single house lost value.
The National Association of Realtors’ Existing Home Sales report can be a valuable source of information for analyzing the housing market. However, it’s important to consider the methodology of the report and how it may differ from other reports that are released each month. While the NAR’s report may indicate a decline in home prices, it’s important to take a holistic view of the market and consider other factors before drawing any conclusions. By doing so, we can have a more accurate understanding of the housing market and make better-informed decisions.
