Appreciation is a Better Gauge of the Housing Market

To get an accurate read on the US housing market, look to repeat home sales metrics, not median sales price.

That’s according to an analysis from CoreLogic, who note that while the median sales price determines trends based on the midpoint of all houses sold in a given market, repeat sales indexes like CoreLogic‘s Home Price Index (HPI) and the CoreLogic S&P Case-Shiller Index measure appreciation based on the difference between the price of a home now versus its prior sale.

In July, for example, the decrease in HPI was much smaller than the median decrease. And the drop in the latter was the biggest since January 2016, Malone says.

“Repeat sales statistics more accurately measure appreciation, and July data demonstrates how using the median sales price can skew commentary and assumptions about real estate market trends,” CoreLogic’s Thomas Malone writes. “The housing market slowdown is due more to buyer adjustment in the types of homes purchased (or buyers leaving the market entirely) than it is because sellers are reducing prices, as the median sales price does not accurately account for the types of homes sold. The median sales price’s broader lens includes movements in all price tiers of homes sold and does not isolate movements in an individual home’s price.”

Malone also says the median sales price “generally overstates” seasonal patterns in real estate markets “because the composition of sales changes greatly during winter months, with transactions moving away from more expensive suburban homes to smaller urban homes.” 

“Though demand does decrease in these months, the actual effect of seasonality is small since more sellers can wait for buyers to return in the summer instead of cutting prices to sell immediately,” he notes.

Sales are also shifting to more affordable areas of the country, with sales in the most expensive regions dropping from 20% in mid-2020 to 18% today. Notably, the HPI did drop more than 2% in July in Western metros like Boise, which CoreLogic’s HPI Market Risk Indicator predicts will have a “very high probability” of a decline of 10% or more over the next 12 months.

But “it is important to remember that when the market changes rapidly, the composition of sales also changes, leading to statistics like the median sales price often missing the mark,” Malone says. “Indeed, the median prices in Boise, Seattle and San Jose all dropped by more than 5% in July, which suggests that price declines were around double what they actually were.”