Recent headlines have sparked confusion with reports that the median asking price of homes has dropped compared to last year. For buyers and sellers, it might seem like prices are falling. But the truth is, those numbers don’t paint the full picture.

Despite a slight dip in the median price, home values are actually on the rise. Let’s break down what’s happening in the housing market to clear up the confusion and help you understand how home values are truly performing.

Homes on the Market Right Now Are Smaller

The main reason for the decrease in the median price is the type and size of homes currently on the market. The median price represents the midpoint of all homes for sale, and it's heavily influenced by the mix of available homes. Right now, there are more smaller, less expensive homes in the market, which is lowering the median price. But that doesn’t mean home values are going down.

To illustrate this, let’s consider a simple analogy. If you have three coins—a nickel and two dimes—the median value is 10 cents. But if you swap one dime for another nickel, the median drops to five cents.

Even though the median value changes, the individual values of the coins remain the same. This is what’s happening with home prices today.

As Danielle Hale, Chief Economist at Realtor.com, explains:

“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.”

This change in inventory is driving down the median price, but it doesn’t reflect an actual decline in home values.

Price Per Square Foot Is Still Rising

A more reliable way to measure home values is by looking at the price per square foot. This metric shows how much you’re paying for the space inside a home, which is a better indicator of overall value than the median asking price. The latest national data on price per square foot shows that home values are continuing to increase, even as the median price has dipped.

As Ralph McLaughlin, Senior Economist at Realtor.com, explains:

“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.”

This confirms that even though smaller homes are pulling the median price down, the value of the average home continues to rise. In fact, 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.”

This means home pricees are still growing nationwide, despite what the median price might suggest.

Local Markets May Differ

While national trends offer a broad view, real estate is local, and prices can vary by region. Some areas may be experiencing different conditions, so it’s crucial to understand what’s happening in your local market. A trusted real estate agent can provide insights specific to your area and help you make informed decisions.

Bottom Line

The drop in the median price of homes doesn’t mean home values are falling. It’s primarily due to a larger share of smaller, less expensive homes being sold. The price per square foot—a more accurate indicator of home value—continues to rise. If you’re curious about what’s happening with home prices in your area, feel free to reach out for more information and personalized advice.