A headline says home prices are falling. Another report says prices are rising. If you are thinking about buying or selling a home, those messages can be hard to square.
The difference may come down to how each report measures prices. A report tracking the middle price of homes sold is not measuring the same thing as a report tracking sales of the same properties over time.
A lower median sales price does not necessarily mean an individual home has lost value. Understanding that distinction can help you read housing headlines without confusing a change in the homes being sold with a change in what those homes are worth.
What the Existing Home Sales Report Measures
The National Association of Realtors, or NAR, publishes its Existing Home Sales report each month. It provides information about sales volume and price trends for homes that have previously been owned.
For its price measure, NAR reports the median home sales price. Some other sources use a repeat-sales approach.
Those methods can produce different stories. Median sales prices can decline while repeat-sales reports show appreciation. That helps explain how a report showing lower prices can appear alongside reports describing prices as having bottomed out and rebounded.
Before deciding what a headline means, ask a simple question: Is this report measuring the middle price of homes sold, or changes in the sales prices of the same properties?
What Median Home Sales Price Means
The median is the middle price when the prices of homes sold are arranged from lowest to highest. Half sold for more, and half sold for less.
The Center for Real Estate Studies at Wichita State University explains:
“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 important phrase is homes that sold. The median reflects that group of sales. If more lower-priced homes are in the group, the middle price can move lower.
That does not mean every home in the group became less valuable. It means the mix of sales matters when you interpret the number.
The Coin Example That Makes It Clear
Set housing aside for a moment and picture three coins in your pocket. Line them up from lowest value to highest value.
- One nickel and two dimes: The values are five cents, 10 cents, and 10 cents. The middle value, or median, is 10 cents.
- Two nickels and one dime: The values are five cents, five cents, and 10 cents. The median is five cents.
The median dropped, but none of the coins changed value. A nickel is still worth five cents. A dime is still worth 10 cents.
Only the mix changed.
The same idea explains why a falling median home sales price does not, by itself, establish that individual homes have lost value. More sales at the lower end can pull the middle price down without reducing the value of any particular house.
How Repeat-Sales Reports Differ
A repeat-sales approach looks at sales of the same property to calculate changes in home prices. Instead of relying on the middle price of a changing group of homes, it follows prices through repeat transactions.
Investopedia describes the approach this way:
“Repeat-sales methods calculate changes in home prices based on sales of the same property, thereby avoiding the problem of trying to account for price differences in homes with varying characteristics.”
This is why repeat-sales reports and median-price reports can point in different directions. They are using different methods, not simply giving different answers to an identical calculation.
Bill McBride, author of the Calculated Risk blog, summarizes the distinction:
“Median prices are distorted by the mix and repeat sales indexes like Case-Shiller and FHFA are probably better for measuring prices.”
The practical takeaway is to understand the method before drawing a conclusion. A declining median and rising repeat-sales measures can exist together because the mix of homes sold can shift even as individual home values rise.
Where Mortgage Rates and Affordability Fit In
Most buyers start with a home's price when deciding whether it fits their budget. But most people buy based on the monthly mortgage payment they can afford, not just the purchase price.
When mortgage rates are higher, a buyer may need a less expensive home to keep the monthly housing expense affordable.
If that affordability pressure leads to more lower-priced homes selling, the sales mix shifts. That shift can bring down the median home sales price.
Follow the connection:
- Higher mortgage rates can affect the monthly payment a buyer can afford.
- A buyer may look for a lower-priced home to stay within that budget.
- More lower-priced sales can move the median sales price down.
That sequence does not mean any single house necessarily lost value. It shows how affordability and mortgage rates can influence which homes sell, which in turn affects the reported median.
How to Read the Next Home Price Headline
When you see a story saying prices are down, remember the coins. Then look for the measure behind the headline.
- Check the methodology. Is the report using median sales prices or repeat sales?
- Consider the mix. Could more lower-priced home sales explain the change in the median?
- Keep your budget in view. If you are buying, focus on the monthly payment you can afford, not just the asking price.
You do not have to ignore median-price reports. You just need to avoid treating a change in the middle sales price as proof that an individual home has changed value.
Your Next Step
For a more in-depth understanding of home price trends and reports, talk with a local real estate professional. Bring the report or headline that raised your question so you can discuss what it actually measures.
If you are planning a purchase, start with the monthly housing payment that fits your budget. Reach out to Ed Parcaut to talk through your mortgage questions and how affordability fits into your next step.
