Home Values Rise Even as Median Prices Fall
Recent headlines have been buzzing about the median asking price of homes dropping compared to last year, and that’s sparked plenty of confusion. And as a buyer or seller, it’s easy to assume that means prices are coming down. But here’s the catch: those numbers don’t tell the full story.Nationally, home values are actually rising, even if the median price is down a bit. Let’s break down what’s really happening so you can make sense of the market without getting caught up in the fear the headlines create.Homes on the Market Right Now Are SmallerThe biggest reason for the dip in median price is the size of homes being sold. The median price reflects the middle point of all the homes for sale at any given time. And that’ll be affected by the mix of homes on the market.To show you how this works, here’s a simple explanation of a median (see visual below). Let’s say you have three coins in your pocket, and you decide to line them up according to their value from low to high. If you have one nickel and two dimes, the median (the middle one) is 10 cents. If you have two nickels and one dime, the median is now five cents. In both cases, a nickel is still worth five cents and a dime is still worth 10 cents. The value of each coin didn’t change. The same is true for housing.Right now, there’s a greater number of smaller, less expensive homes on the market, and that’s bringing the overall median price down. But that doesn’t mean home values are declining.As Danielle Hale, Chief Economist at Realtor.com, explains:“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.” And here’s the data to prove it. Price Per Square Foot Is Still RisingOne of the best ways to measure home values is by looking at the price per square foot. That’s because it shows how much you're paying for the space inside the home.The median asking price doesn't take into account the size of different homes, so it may not always reflect the true value. And the latest national price per square foot data shows home values are still increasing, even though the median asking price has dropped (see graph below). As Ralph McLaughlin, Senior Economist at Realtor.com, explains:“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.” This means that while smaller homes are affecting the median price, the average home’s value is still rising. According to the Federal Housing Finance Agency (FHFA):“Nationally, the U.S. housing market has experienced positive annual appreciation each quarter since the start of 2012.” So, while headlines may make it sound like prices are crashing, you don’t have to worry. With a closer look and more reliable data, you can see that prices are still climbing nationally.But it’s important to remember that home prices can vary by region. While national trends provide a big-picture view, local markets may be experiencing different conditions. A trusted agent is the best resource to explain what’s happening in your area. Bottom LineThe decrease in median price is not the same as a decrease in home values. The median asking price is down mostly due to the mix of smaller, less expensive homes on the market.The important thing to focus on is the price per square foot, which is a better indicator of overall market value—and those prices are still going up. If you have questions about what home prices are doing in our area, feel free to reach out at Aurhomes Group.
The Latest Builder Trend: Smaller, Less Expensive Homes
Even though affordability is improving, buying a home can still feel tough right now. But here’s some good news: builders are focusing their efforts on building smaller homes, and they’re offering key incentives to buyers. Both of these things can be a big help if you're worried about finding a home that’s right for your budget. Builders Are Building Smaller Homes During the pandemic, homebuyers were looking for larger homes—and many could afford them. Builders responded to that demand and created bigger spaces to help people with things like working from home, setting up home gyms, and having extra rooms for virtual school.Now, with affordability as tight as it is, builders are turning their focus to smaller single-family homes. Data from the Census shows how significant this trend toward smaller new homes has been over the last couple of years (see graph below): But why would builders want to build smaller homes right now? At the end of the day, builders are going to focus on building homes that meet current market demand – because they want to build what they know will sell. And the number one thing homebuyers are looking for right now is better affordability. Since smaller homes typically come with smaller price tags, both buyers and builders have shifted their focus to homes with less square footage. The National Association of Home Builders (NAHB) reports: “. . . home buyers are looking for homes around 2,070 square feet, compared to 2,260 20 years ago.” And according to Orphe Divounguy, Senior Economist at Zillow: “Not only are cash-strapped buyers continually seeking out lower-cost options, but developers are changing what type and size of home they're producing to try and meet that need." How a Newly Built Home Can Help You Achieve Your Homebuying Goals So, if you’re having a hard time finding something in your budget, it may be time to look at brand-new homes that have a smaller footprint. When you do, you may get a few other fringe benefits that can help on the affordability front – like price reductions or mortgage rate buy-downs.According to the most recent data from Zonda, more than half of builders are offering incentives, some of which are mortgage rate buydowns. And those perks could help lower your future monthly housing payment too. John Burns, CEO of John Burns Research & Consulting, shares:“The monthly payment matters more than anything else and builders have responded with smaller, more efficient homes.” Not to mention, with new home construction, you’ll also get brand new everything, have fewer maintenance needs, and get some of the latest features available. That’s worth looking into, right? Bottom LineWith builders focusing on smaller homes, you may have more budget-friendly options when it matters most. If you're thinking about buying a home soon, let’s connect at Aurhomes Group and see what’s available where you want to live.
This Is the Sweet Spot Homebuyers Have Been Waiting For
After months of sitting on the sidelines, many homebuyers who were priced out by high mortgage rates and affordability challenges finally have an opportunity to make their move. With rates trending down, today’s market is a sweet spot for buyers—and it’s one that may not last long.So, if you’ve put your own move on the back burner, here’s why maybe you shouldn’t delay your plans any longer.As you weigh your options and decide if you should buy now or wait, ask yourself this: What do you think everyone else is going to do?The truth is, if mortgage rates continue to ease, as experts project, more buyers will jump back into the market. A survey from Bankrate shows over half of homeowners would be motivated to buy this year if rates drop below 6% (see graph below): With rates already in the low 6% range, we’re not terribly far off from hitting that threshold. The bottom line is, that when they drop into the 5s, the number of buyers in the market is going to go up – and that means more competition for you.That increased demand will likely push home prices up, which could potentially take away from some of the benefits you'd gain from a slightly lower interest rate. As Nadia Evangelou, Senior Economist and Director of Real Estate Research at the National Association of Realtors (NAR), explains:“The downside of increased demand is that it puts upward pressure on home prices as multiple buyers compete for a limited number of homes. In markets with ongoing housing shortages, this price increase can offset some of the affordability gains from lower mortgage rates.” So, while waiting to buy may seem like a smart move, it could backfire if rising prices outpace your savings from slightly lower rates.What This Means for You Right now, you’ve got the chance to get ahead of all of that. Today’s market is a buyer sweet spot. Why? Because a lot of other buyers are waiting – which means not as many people are actively looking for homes. That means less competition for you.At the same time, affordability has already improved quite a bit. Recent easing in mortgage rates has made homeownership more accessible. As Mike Simonsen, Founder of Altos Research, says:“Mortgage payments on the typical-price home are 7% lower than last year and are 13% lower than the peak in May 2024.” And while the supply of homes for sale is still low, it's also higher than it’s been in years. According to Ralph McLaughlin, Senior Economist at Realtor.com:“The number of homes actively for sale continues to be elevated compared with last year, growing by 35.8%, a 10th straight month of growth, and now sits at the highest since May 2020.” This means you now have more options to choose from than you’ve had in quite a while.With fewer buyers in the market, improving affordability, and more homes to choose from, you have the chance to find the right one before the competition heats up.Why Waiting Could Cost You If you’re waiting for the perfect time to buy, it’s important to understand that timing the market is nearly impossible. The longer you wait, the higher the risk that market conditions will shift—and not necessarily in your favor. As Greg McBride, Chief Financial Analyst at Bankrate, says:“It’s one of those things where you should be careful what you wish for. A further drop in mortgage rates could bring a surge of demand that makes it tougher to actually buy a house.” Bottom LineDon’t wait until you have to deal with more competition and higher prices – you already have the chance to buy a home while we’re in the sweet spot today. Let’s connect at Aurhomes Group to make sure you’re taking advantage of it.
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