The Difference Between the Median Home Price and Appreciation

Authored By:
Diana Bajramovic
Shelly Williams
John Smith
January 1, 2023
5 min read

Many people are confused about what’s really happening with home prices here in the U.S. and that’s because of the media. There’s a difference between real appreciation and the metric that the media often discusses, which is the median home price.

Let’s break down this crucial distinction, so buyers don’t miss out on the chance to build wealth through homeownership.

Real Appreciation Remains Strong

Annual home price growth for all of 2023 ranged from 5.5% to 6.6% in the four major home price indexes here in the U.S. – Case-Shiller, Federal Housing Finance Agency (FHFA), Black Knight and CoreLogic.

This strong level of growth has continued into 2024, with Case-Shiller reporting that home values in January were 6% higher than a year earlier. S&P DJI’s Head of Commodities, Brian D. Luke, explained that this was the “fastest annual rate since 2022,” adding that all 20 cities in their composite index saw annual price increases for the second straight month.

On a similar note, Black Knight and FHFA showed 5.6% and 6.3% year-over-year growth in their respective indexes for January while CoreLogic saw a 5.5% annual rise for February.

Yet, when the latest New Home Sales report for February was released, some media outlets pointed to the decline in the median home price, which was down 3.5% from January and 7.6% from a year ago, to say the report was a miss.

But the median home price did not decline because of falling home prices, which continue to rise as noted above.

The median home price represents the mid-price of sales, meaning it’s influenced by the mix of sales in any given month. Builders are constructing smaller, more affordable homes to meet buyer demand, and that pushed the median home price lower comparatively.

In other words, February’s decline in the median home price stemmed from the sale of more homes at lower price points – and not from a decline in home values.

How the Median Home Price Can Fall Amid Rising Appreciation

Let’s look at a very simple example that can help combat this media misinformation, remove fear from the equation, and help potential buyers understand the opportunity that exists when purchasing a home today.

Looking at the chart below, in the top row you’ll see we have five homes listed from the lowest to the highest price. The middle price home is the median home price of $400,000. When we apply the 6% appreciation seen in 2022 to each home, we can see in row two how each home rose in price.

Now, let’s say that only homes one, two and three sell. The median home price shifts down 7% to $371,000, but appreciation for each home has still risen by 6%.

Imagine the doom and gloom headlines that would occur if the media focused on the huge drop in the median home price, which is the metric they often cover, rather than the rise in home values. No doubt these stories would stir hesitation among buyers and possibly even lead to growing concerns about a housing bubble.

This example speaks to the importance of combatting media misinformation, so buyers can understand the real story about home values and the real benefits of homeownership.

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By Diana Bajramovic and Shelly Williams @ MBS Highway

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