The Truth About Home Prices
Real estate statistics have become a hot topic these days, especially reports which suggest that housing prices are plummeting around the country. One recent headline stated that new home prices have fallen nearly 10%, the largest drip since 1970 for the year-over-year monthly comparison in September.
What the headlines don’t tell you is how these numbers are calculated. It’s important to keep in mind that it’s the median price that is being reported. (Remember, the median price of a new home is the number where half of the homes sold for more and half sold for less.) A recent story that was published on WallStreetJournal.com showed just how inaccurate these numbers can be.
Did you know that the median price of a new home dropped by a much lower 1.7% for the third quarter, and median prices actually INCREASED in all of the major geographic regions in the country? That’s right, they increased, anywhere from just under 1% to as much as over 19%.
The average price of a new home actually increased in the face of a falling median price.
This means the sky is not falling on new home prices! How can this be? It’s simple. The buying trends of the country have shifted. In looking at new home purchases, it becomes apparent that a larger number of homes are being sold in regions of the country where homes are priced lower to begin with. (Areas such as the Southeast and Midwest, as opposed to higher-priced areas like the West Coast and Northeast.)
Another important milestone worth noting is that we now have 300 million people living in the U.S. More people means greater housing needs. This also means that there are more First Time Homebuyers. First Time Homebuyers buy less expensive, entry-level housing which can skew the median number down.
The bottom line is that you shouldn’t get wrapped up in median prices. You need to remember that news reports about national trends don’t always apply to your specific market.
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