Median prices don’t tell the whole story about housing values

To better understand the dynamics of a local real estate market, it’s important to analyze the difference between median price fluctuations and home price appreciation.

If you’re following the business press, you’re most likely to read or hear about the changes in median sale prices. These figures would indicate that homeowners are experiencing much heavier price swings than is actually the case.

So, let’s take a closer look to see the factors at play with median price changes:
The allocation or distribution of sales across price ranges has a major impact on pricing trends. For example, if a market has seen a shift of either more or fewer luxury sales — possibly due to inventory or the build-out of a high-end community — the impact can dramatically change the local median price from one month to the next (a month-over-month basis). To get a more accurate picture of the movement in median home prices, we prefer to look at price changes on a rolling 12-month or rolling six-month basis. It’s a better assessment of what’s happening in the market compared to the dynamic monthly median price swings.

And while we use median price changes to help analyze market trends, it is still not our best measure of the true change in prices. For an even better means of measuring price movement, we rely on the FHFA (Federal Housing Finance Authority) for appreciation rate data by MSA.

In this analysis, the FHFA takes a grouping of homes across different Metropolitan Statistical Areas (MSAs), and it tracks the home prices at the time of resale or refinancing to reflect a more accurate depiction of appreciation. It’s different from the median price data, because the FHFA is looking at exact subject properties spread across price ranges and areas, and then showing the change in value on a quarterly basis.

Here is a snapshot of the FHFA data that compares appreciation trends in Northern Colorado to Colorado Springs and the state as a whole:
Colorado: 3 consecutive quarters of negative appreciation.
Fort Collins/Loveland MSA: Only the fourth quarter of 2022 was negative, but Q1 prices increased 1.5%.
Greeley MSA: Only the fourth quarter of 2022 was negative, but Q1 prices increased 2.5%.
Colorado Springs MSA: Three consecutive quarters of negative appreciation.

While the real estate market has seen some change over the past 12 months, the fact remains that Northern Colorado continues to be a great place to own a home. As other parts of the country have experienced larger sales declines and more pressure on prices, our Northern Colorado housing market is very stable and is performing as it has historically during changing markets.

To further understand the difference between median price changes and appreciation, here are some useful definitions:
Median Price — The median price represents the middle point, where half of the properties sold for a higher price and half for a lower price. The median price change refers to the difference in the median sale prices of properties between two specific periods. It is a measure of the central tendency of price movements in a market. By calculating the difference in the median sale prices over time, we can determine the median price change.

For example, if the median sale price of properties in a market was $300,000 last year and increased to $350,000 this year, the median price change would be an increase of $50,000. The median price change provides a general overview of the direction and magnitude of price movements in a real estate market but doesn’t capture the price changes of individual properties.

Actual Appreciation — Actual appreciation, also known as absolute or nominal appreciation, represents the change in the actual value of a specific property over a given time period. It reflects the difference in the property’s sale price at two different points in time.

For instance, if a property was purchased for $250,000 five years ago and is sold for $300,000 today, the actual appreciation would be $50,000, or 20%. Actual appreciation measures the real financial gain or loss experienced by a property owner.

Actual appreciation accounts for factors that can impact individual properties differently, such as property condition, location, improvements, and market demand. It provides a more accurate reflection of the value change for a particular property.

To summarize, median price change captures the overall movement in property prices by comparing the median sale prices between two periods, while actual appreciation focuses on the change in value of a specific property by comparing its sale price at different points in time. Both measures offer valuable insights into the real estate market, but they provide different perspectives on price movements.

Brandon Wells is president of The Group Inc. Real Estate, founded in Fort Collins in 1976 with six locations in Northern Colorado. He can be reached at [email protected] or 970-430-6463.

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