Decoding Home Price Reports: Understanding the NAR’s EHS Release

by | Aug 21, 2023

As anticipation builds for the release of the National Association of Realtors’ (NAR) most recent Existing Home Sales (EHS) report, the housing market enthusiasts are poised for fresh insights into the volume of sales and the prevailing price trends for pre-owned homes. Scheduled for tomorrow, this monthly publication has the potential to influence perceptions and decisions across the real estate landscape. But what might appear as a straightforward revelation about falling home prices could be riddled with nuances and methodological intricacies.

Understanding the Existing Home Sales (EHS) Report

The EHS report, a cornerstone of the real estate data ecosystem, offers a comprehensive snapshot of the market’s dynamics. It goes beyond the mere tally of homes sold, providing a lens into the intricate dance between supply, demand, and pricing. The report’s significance stems from its ability to capture the ebbs and flows of the housing market’s heartbeat, allowing stakeholders to make informed decisions.

Contradictory Messages: Home Prices Are Down?

As the dust settles after the release of the EHS report, one peculiar theme may emerge – the assertion that home prices are on a downward trajectory. This, however, might appear perplexing, especially in the light of prevailing narratives touting the rebound of home prices from their nadir. How could such a discrepancy arise, and what’s the underlying rationale?

Methodology Matters: Median Home Sales Price vs. Repeat Sales Prices

The crux of the matter lies in the methodologies employed by various reports to assess home prices. While the NAR’s report hinges on the median home sales price, other sources wield the repeat sales approach. The distinction between these approaches is pivotal in understanding the seeming contradictions in home price data.

Deciphering Median Sales Prices

Imagine a scenario where you’re asked to line up your coins based on their values, ranging from low to high. This conceptualization of ordering values is akin to calculating the median sale price. The median effectively marks the midpoint – a value where half of the homes sold fetch a higher price, and the other half, a lower one. However, there’s a catch. Fluctuations in the mix of homes sold can influence the median, even if the value of each individual home is on an upward trajectory.

Repeat Sales Approach: A Different Perspective

In contrast to the median approach, the repeat sales method sidesteps the complexity arising from varying property characteristics. By exclusively focusing on sales of the same property, this methodology delivers a more granular view of price changes. It offers a purified lens, untainted by the influences of evolving property compositions.

The Story of Mix and Median: Bill McBride’s Insights

Bill McBride, the insightful mind behind the Calculated Risk blog, succinctly captures the essence of the debate. He underscores that median prices can be skewed by the mix of homes in the market. In his view, indexes like Case-Shiller and FHFA, founded on repeat sales principles, reign supreme in the quest for an accurate price assessment.

Visualizing Median Value: A Coin Example

Consider three coins nestled in your pocket. Sorting them from the lowest to the highest value, the middle coin represents the median. Whether the coins comprise nickels or dimes, the median value retains its essence. This illustration serves as a simple analogy, showcasing how a shift in composition doesn’t alter individual values.

Looking Beyond the Sticker Price: Affordability and Mortgage Rates

For buyers, a home’s price is often the first touchpoint, dictating compatibility with budgets. Yet, the heart of the matter lies in the monthly mortgage payment – the decisive factor that guides the purchase. In times of elevated mortgage rates, recalibrating the budget might necessitate considering homes of lesser cost, driving the surge in the sale of “less-expensive” homes and consequently, lowering the median price.

The Affordability Factor: Impact on Sales Composition

The prevailing trend of increased sales of “less-expensive” homes is inextricably linked to the ongoing decline in the median home sales price. But this shift doesn’t imply that individual homes are losing their value. Instead, it’s a testament to the dynamic interplay between affordability constraints and mortgage rate fluctuations.

Interpreting Media Headlines: Context Matters

Media narratives, especially in the throes of a market shift, can be deceptively simplistic. The headlines proclaiming falling prices deserve a nuanced analysis. Scrutinizing the methodology behind these reports and understanding the broader context can unveil the true narrative behind the figures.


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