Median Home Prices Versus Appreciation
Median home prices are often looked at closely by reale state investors. They are often misinterpreted by new investors as well. The statement (home prices rise by 10%) is much different than a statement stating (your home appreciated by 10%). This is a huge difference that is often confused and misinterpreted. The median home price for a particular market area is readily available by asking a local realtor who specializes in an area. Often this info can be found on your local real estate websites. Reading into the information is extremely important and this is where lots of times it gets misinterpreted.
The media and many commission based real estate professionals like to report home prices are rising and or falling. In fact they should state the median home price of the area has risen or fallen. The distinction is the word median values versus appreciation.
The clarification: they are referring to the median home price within a specific area is rising and or falling. This means that for the current month being discussed, the cost of houses that people are buying represent higher or lower price points than the month before. Simply stated, higher priced homes are selling more now than a month ago.This does not necessarily mean that a particular home's value has appreciated in value by that same number.
O.K, I see that confused look on your face so let’s look at an example.
Let’s say in July that you purchase a home for 80K in your city. Let’s say that the median home price in July in your city was a 100k. Now, in the month of August it is reported that home values rose in your city with a median home price of 110K. This reflects a 10% median home price increase. This is where people get confused. They think that their home appreciated in value by 10%. This does not mean your purchased property 1 month earlier had a price appreciation of 10% to now be valued at $88k ($80k plus 10%). What it simply means is that more people are purchasing higher priced homes in the month of August over the month of July.
Yes, your home’s value will have a positive reaction to these higher median home prices as it reflects people are willing to spend more money on a property in your city now than they were before. Too many people however assume it automatically means home values have raised (in this scenario by 10%) the media and or the realtors love to create that appearance. Truth is, home appreciation is different than median prices. The savvy investor must know this distinction. The media uses terms like home values have risen, letting you assume appreciation.
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