You have probably seen post after post, article after article, and video after video from the real estate industry that median home price is no longer valid after being used for decades!
Well, I don’t blame them. If home prices were falling before inflation, I would probably try to discredit the data too.
The posts, articles, and videos that you might have seen, which all use the same script, regurgitate that the median does not take into account that more low-priced homes are selling.
In 2021 and 2022 when I was pointing out an outlier event in home sales in the luxury market no one was preoccupied with the phenomenon or pointing out that the median price had shifted due to this.
Looking at the distribution of the number of homes sold by price in 2021 one could clearly see that the market was driven by the rich and well-to-do. When more than $2 million homes sold than 300-400 or 400 to 500 in most metropolitan areas one could not call the real estate market healthy.
The pandemic was a boon for top earners and the wealthy. They received most of the liquidity injections during the pandemic and access to the best loan terms and rates. No wonder SVB and First Republic held billions in new mortgages at low rates which were mostly variable and interest only. The top 10%, sold their homes for top dollar (some for 100 or 500% gains), got PPP loans, bailouts, stimulus, cheap debt, and stock market gains.
With this newfound wealth, they bought homes, and some of them bought multiple homes. Add investors that were buying up at the higher end and the market was distorted. See the sold price distribution of different cities below and take a close look at the bell curve shape and the spike in sales of over $2 million dollar homes. This was not a local event but a national event as city after city shows a similarly shaped bell curve.
I saw or heard no one in the industry talking about the distortion of median home prices then. My oh my, why would anyone say anything when the median home price was rising rapidly? Now that the rich and investors are done there is no support. The distribution of homes sold by price point has returned to normal and now we are figuring out that demand is weak as affordability has gone out of the window.
Now the industry wants to use indexes with regressions to soften the blow. I Don’t blame them. If your numbers suck use different numbers.
I warned that the market was overly dependent on the rich and sooner or later high rates or not that demand would run out. Once left with ordinary Americans that can’t afford these prices, let alone these at these rates, the market would start to crack. Interestingly something similar happened in 2005. As the rich and well-off exhausted themselves buying homes the market need fresh new buyers. That is when we came up with exotic mortgages. No money down, interest only blah blah.
The same is happening again trying to scrape the bottom of the barrel.