Are the home median price gains being accurately reported?
The answer is yes and no.
The median price is but one indicator used to gauge market performance, and the meaning of numbers behind it changes depending on when the measurement was taken.
Recently, the median price is a combination of:
- True price increases, and
- A change in the closed sale mix the median is based on.
To get a better understanding of the median price gains that are being reported, we first need to look at what is happening in the market – both in the lower ranges and the higher ranges.
Anaheim Hills area homes in the lower price ranges
Over the last year, homes in the Anaheim Hills area in price ranges up to $500K have experienced high demand. Also, banks have slowed the number of foreclosed homes they are placing on the market. In addition, many homes in these price ranges are not in good enough condition for FHA insured loans to be used for financing. This has created a climate that is enticing to local and out-of-state cash investors.
These factors combined contribute to a very small pool of financeable homes for a large number of qualified non-cash buyers. All of this has contributed to an anxiety-ridden buyer’s market, complete with multiple offers and bidding wars, which has resulted in an increase in home values in these lower ranges.
Normally, in this situation the price increases would reach into the double digits. However, the banks are releasing foreclosed properties at a pace that keeps a tight cap on how much of a price increase we actually see.
The market conditions driving price increases – combined with the price cap created by the slow, but steady, release of foreclosed properties by the banks – are stabilizing home values in the lower price ranges.
Anaheim Hills area homes in the higher price ranges
The stabilization of home prices in the up-to-$500K market has become a foundation for stabilization of values in the price ranges between $500K – $1.2 million in some areas. This has resulted in more owners putting their homes up for sale in these higher price ranges.
At the same time, the number of distressed homes being placed on the market in these higher price ranges – in one form of sale or another – is increasing. This makes sense when one considers that, in any economic downturn, adversity hits those who are least able to prepare for it first, then moves up the ladder as the downturn lingers and grows.
A number of communities that appeared to be somewhat immune to the fall in home values are now beginning to see a decline in home values that will bring them into balance with similar properties in other areas and their lower range counterparts.
In the price ranges from $500K – $1.2 million, the inventory is increasing, and the average sales price across all of these homes is declining, which creates the natural underpinnings of increased demand.
The closed sale mix is changing
A tight inventory of homes available to qualified buyers in the lower price ranges combined with price increases, however minimal, has led to a reduction of closed sales in these price ranges.
A growing inventory, combined with overall lower prices in the higher price ranges, equals more closed sales.
So, here’s the math:
For example, if five homes sold at $325K, $350K, $400K, $425K, $450K and $500K the median price is $425K.
For another example, if five homes sold at $525K, $575K, $625K, $695K, and $725K the median price is $625K, a median price increase of 32%.
This is an over-the-top example, but an example nonetheless.
What it shows is not a 3% or 4% price increase in the lower ranges or a 4% or 5% price decrease in the higher ranges – rather, it shows a new mix in the available inventory.
The moral of the story:
Never assume the reported median value is indicative of your home’s increase or decrease in value. Always use the average sales price of like properties, in a like location, during a like period of time to set a particular home’s market value.
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