Lately, the headlines have been buzzing about the median asking price of homes dropping compared to last year, which has caused some confusion. As a buyer or seller, you might assume this means home prices are falling—but that's not exactly true. The reality is that while the median price may be down, home values are still on the rise. Let's break it down to clear up the confusion and help you understand the current housing market.

Smaller Homes Are Shaping the Market

The drop in median price has more to do with the size of homes currently on the market than an actual decrease in home values. The median price represents the midpoint of all homes for sale at a given time. This figure is influenced by the mix of homes available.

To put it simply, if smaller, more affordable homes are dominating the market, the median price will reflect that. For example, if you have a row of three coins—a nickel, a dime, and another dime—the median is 10 cents. But if that mix changes to two nickels and one dime, the median drops to five cents. In both cases, the value of each coin hasn’t changed—just the median. The same concept applies to housing.

As Danielle Hale, Chief Economist at Realtor.com, puts it:

“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.”

Price Per Square Foot Continues to Climb

One of the best ways to assess true home values is by looking at the price per square foot. This measure accounts for the actual size of the homes being sold and gives a more accurate picture of the market. Even though the median price is lower, the price per square foot continues to rise, showing that home values are still increasing.

Ralph McLaughlin, Senior Economist at Realtor.com, emphasizes:

“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.”

In other words, while smaller homes are affecting the median price, home values are still trending upward. 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, despite what some headlines may suggest, home prices are not crashing. In fact, values are continuing to appreciate.

Remember: Prices Can Vary by Region

While national trends show a general rise in home values, it’s important to remember that local markets may tell a different story. Real estate conditions can vary depending on the region, so it's always best to check with a local expert. A trusted real estate agent can give you a clearer understanding of what's happening in your area.

Bottom Line

The recent drop in median prices is not the same as a decline in home values. This shift is largely due to the influx of smaller, less expensive homes on the market. A better way to gauge home values is by looking at the price per square foot, which is still going up. If you’re curious about what home prices are doing in your area, feel free to reach out for more information.