Are Home Prices Actually Increasing?

There is much euphoria about housing prices based on the last month’s data. Almost every pricing index has shown an increase over previous prices. The news looks very encouraging. Many media sources have reported that perhaps we have hit bottom regarding prices and are now headed in a more positive direction. I wish that was true.

It is important for every reader of this blog to know that I would love to report that real estate has turned the corner and there are only good times ahead. I own my home and, over my 25+ years in the real estate industry, have acquired a few investment properties. My net worth is dramatically impacted by real estate values. We must look at what is happening realistically however.

It is true that the average price of homes sold last month was up 2.9% over last year. That has nothing to do with the values of individual properties.

Let’s look at the reasons why?

1. The Mix of Properties Sold Changed

Let’s assume we were looking at the average price of cars sold in this country on a weekly basis.  If last week most of the cars purchased were Fords and Hondas, the average price would be ‘X’.  If this week most of the cars purchased were Cadillacs and Mercedes, the average price would be closer to ‘2X’. That does not mean that Ford and Honda prices increased.

The same holds true for house values. The percentages of first-time-buyers and investors purchasing homes were very high. Both of these categories of buyers usually buy in the lower end price points in any market. The percentages of these buyers fell last month. According to the National Association of Realtors (NAR) Existing Home Sales Report:

A parallel NAR practitioner survey shows first-time buyers purchased 46 percent of homes in May, down from 49 percent in April. Investors accounted for 14 percent of transactions in May compared with 15 percent in April.

Obviously, if the percentages of buyers that historically buy less expensive homes (Fords and Hondas) decreased, the average sales price would increase.

2. Distressed Properties Made Up less of the Market Last Month

Many first-time-buyers (and investors) concentrated on price. Foreclosures and short sales often offered the best price. Move-up buyers are not as enamored with distressed properties perhaps better understanding the true cost in money and time to repair them.

In the same report mentioned above, NAR explained:

Distressed homes slipped to 31 percent of sales last month, compared with 33 percent in April.

Non-distressed properties sell for more. If the percentages of less expensive homes selling decreased, the average sales price would increase.

That is not the same as saying that the price of any individual home increased.

What does this mean to you?

If you are selling your home, don’t get caught up in the headlines. Have a real estate professional that you believe is an industry leader in your market sit down and explain what is actually happening to prices in your neighborhood.

Tagged as: Home Prices