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If you’ve been following recent real estate headlines, you’ve probably seen a lot of buzz about the “drop” in median home prices compared to last year. For anyone thinking of buying or selling, it’s easy to assume that prices are on a downward trend. But here’s the truth: those numbers don’t tell the full story.
Nationally, home values are actually increasing, even if the median price has slipped a bit. Let’s dive into what’s really happening in today’s housing market so you can make informed decisions without getting caught up in misleading headlines.
Why Median Prices Are Lower: It’s All About the Home Size
The primary reason for the dip in median prices? The size of homes currently on the market. The median price simply reflects the middle point of all the homes for sale at a given time, so it can be skewed based on the types of homes available.
Here’s a quick analogy to help explain (see infographic below). Imagine you have three coins in your pocket and you line them up by value from low to high. If you have one nickel and two dimes, the median coin is 10 cents. But if you have two nickels and one dime, the median is now five cents. The value of each coin hasn’t changed; what’s changed is the mix.
This is similar to what we’re seeing in housing. Right now, there are more smaller, less expensive homes on the market, which is pulling the overall median price down. But don’t be fooled—this doesn’t mean home values are declining.
As Danielle Hale, Chief Economist at Realtor.com, points out:
“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.”
Price Per Square Foot: The Real Measure of Home Value
One of the best ways to track home value trends is by looking at the price per square foot. This metric tells you what you’re paying for the actual space inside the home, and it’s a more accurate indicator of overall market value.
While the median asking price may have dipped, the price per square foot continues to climb (see infographic below). This shows that the value of individual homes is actually rising, even though the median price suggests otherwise.
Ralph McLaughlin, Senior Economist at Realtor.com, explains it well:
“When a change in the mix of inventory toward smaller homes is accounted for, the typical home listed this year has increased in asking price compared with last year.”
In other words, smaller homes are affecting the median price, but the overall value of homes continues to go up. According to data from the Federal Housing Finance Agency (FHFA):
“Nationally, the U.S. housing market has experienced positive annual appreciation each quarter since the start of 2012.”
This means that despite what headlines may imply, home values are still on the rise.
Understanding Regional Differences
While these national trends provide a reassuring big-picture view, it’s also essential to remember that every market is unique. Local factors, such as demand, economic conditions, and housing inventory, can impact prices differently. A trusted local agent can help you understand what’s happening in your specific area and provide insights that go beyond national averages.
Bottom Line
The recent drop in median asking prices doesn’t mean home values are falling. This dip is mainly due to a greater number of smaller, more affordable homes hitting the market, which skews the median downwards. But when you look at price per square foot—a more accurate measure of home values—you’ll see that prices are still rising.
So, don’t let the headlines fool you! If you have questions about the Denver market or want to know more about home values in your area, I’m here to help you make sense of the data and guide you toward informed decisions.
