Recent headlines have been buzzing about a decline in the median asking price of homes compared to last year, leading to confusion among buyers and sellers alike. It’s easy to assume that this signals a drop in prices, but there's more to the story than what those numbers suggest.

The Bigger Picture: Home Values Are Rising

Despite a slight decrease in median prices, national home values are actually on the rise. Let’s break down the situation to help you navigate the market without falling prey to sensational headlines.

Smaller Homes Are Influencing Median Prices

One major factor contributing to the dip in the median price is the size of homes currently on the market. The median price reflects the midpoint of all homes for sale, and changes in the mix of homes available can significantly affect this figure.

To illustrate this concept, consider a simple example of three coins: if you have one nickel and two dimes, the median value is 10 cents. But if the mix changes to two nickels and one dime, the median drops to five cents. In both cases, the value of the coins remains unchanged.

Right now, a larger share of smaller, more affordable homes is on the market, which is bringing down the overall median price. However, this doesn’t mean that home values are declining.

Danielle Hale, Chief Economist at Realtor.com, notes, “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 continue to rise.”

Price Per Square Foot: The True Indicator of Value

To get a clearer picture of home values, it's essential to look at the price per square foot. This metric reveals how much you’re paying for the actual space within a home, regardless of its size.

The median asking price doesn't fully reflect true value, and the latest national data on price per square foot indicates that home values are still increasing, even with the dip in median prices.

Ralph McLaughlin, Senior Economist at Realtor.com, emphasizes, “When you account for the change in the inventory mix toward smaller homes, the typical home listed this year has a higher asking price compared to last year.”

The Federal Housing Finance Agency (FHFA) supports this, stating, “Nationally, the U.S. housing market has experienced positive annual appreciation each quarter since the start of 2012.”

Local Markets Matter

While national trends offer a broad perspective, home prices can vary significantly by region. Local conditions might differ from the national average, making it crucial to consult a trusted real estate agent for insights specific to your area.

Bottom Line

A decrease in the median asking price doesn’t equate to a drop in home values. The decline is primarily due to the prevalence of smaller, more affordable homes on the market. The price per square foot remains a more reliable indicator of overall market value, and those prices are still climbing.