Friday, August 21, 2015
By Carly Ferry
Home Values at Record Levels

Talks about the median existing-home price in June was $236,400 that value surpasses the peak median sales price set in July 2006 ($230,400) which created many headlines exclaiming that home prices had hit a “new record”.

Though the headlines are accurate, we want to take a closer look at the story. We do not want people to believe that this information is evidence that a new “price bubble” is forming in housing.

NAR reports the median home price, meaning that 50% of the homes sold above that number and 50% sold below that number and with fewer distressed properties now selling, the median price will rise. The median value does not reflect that each individual property is increasing in value.

Generally speaking we should ignore the median sales price because it is impacted by the mix of homes sold. As NAR reported the median sales price was $236,400 in June, above the median peak of $230,400 in July 2006 which is 9 years ago, in real terms, median prices are close to 20% below the previous peak. Not close. There are other reasons to consider about housing affordability by comparing prices with incomes or prices with rents for a given market. Crude comparisons of nominal home prices with their 2006 and 2007 levels shouldn’t be used to make claims about a new bubble.

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