Recent headlines have been buzzing about a drop in the median asking price of homes compared to last year, causing quite a bit of confusion. As a buyer or seller, you might think this means home prices are falling. But here’s the thing: those figures don’t give you the whole picture.
On a national level, home values are actually on the rise, even if the median price has dipped slightly. So, let’s break down what’s really happening, so you can understand the market without getting swept up in misleading headlines.
Smaller Homes Are Dominating the Market
One of the primary reasons for the decline in median prices is the size of homes being sold. The median price represents the middle point of all homes for sale at any given moment, and this can be skewed by the types of homes available on the market.
Here’s a simple way to explain how the median works (see visual below). Imagine you have three coins in your pocket, and you line them up by value from lowest to highest. If you have one nickel and two dimes, the median value (the middle coin) is 10 cents. But if you have two nickels and one dime, the median shifts to 5 cents. The same principle applies to home prices—if more smaller or lower-priced homes are listed, it pulls the median down, even though overall home values are increasing.
In both examples, the value of each coin remains the same—a nickel is still worth five cents, and a dime is still worth 10 cents. The same concept applies to housing: even if the median price drops, it doesn’t mean the actual value of homes is decreasing.
Currently, there’s a higher number of smaller, more affordable homes on the market, which is pulling the median price down. However, this doesn’t reflect a decline in home values.
As Danielle Hale, Chief Economist at Realtor.com, explains:
‘The share of inventory of smaller and more affordable homes has grown, which helps hold down the median price even as per-square-foot prices grow further.’
Here’s the data to back it up:
Price Per Square Foot Continues to Rise
A more accurate way to assess home values is by looking at the price per square foot, as it shows how much you’re paying for the actual space in the home.
The median asking price doesn’t account for varying home sizes, so it may not always represent true home values. Recent national data on price per square foot shows that, despite the dip in median asking prices, home values are still climbing (see graph below).
As Ralph McLaughlin, Senior Economist at Realtor.com, puts it:
“When we account for the shift toward smaller homes in the inventory, the typical home listed this year has actually increased in asking price compared to last year.”
In other words, while smaller homes are pulling the median price down, the value of an average home is still rising. According to the Federal Housing Finance Agency (FHFA):
“Nationally, the U.S. housing market has experienced positive annual appreciation every quarter since the start of 2012.”
So, despite what some headlines may suggest, home prices aren’t crashing. A closer look at the data shows that values are continuing to climb across the nation.
However, it’s important to keep in mind that home prices can vary significantly by region. While national trends offer a broad perspective, local markets may be experiencing different dynamics. That’s why working with a knowledgeable agent is key to understanding what’s happening in your area.
Bottom Line
The drop in the median asking price doesn’t mean home values are falling. This decline is largely due to an increase in smaller, more affordable homes on the market.
The real figure to watch is the price per square foot, which is a much better indicator of true market value—and those prices are still on the rise. If you have any questions about the housing market in our area, feel free to reach out!
