Are Home Prices Really Dropping? Here’s What’s Actually Happening in the Market

You might’ve seen headlines lately talking about the median asking price of homes dropping compared to last year. That’s caused quite a bit of confusion, and it’s understandable why. If you’re a buyer or seller, you could be thinking that means prices are finally coming down. But here's the catch—those headlines don’t tell the full story.

In reality, home values are still rising nationally, despite the dip in median asking price. Let’s break it down so you can get a clearer picture of what’s really happening and not get caught up in the fear the media is stirring.

Why the Median Price Is Misleading: It’s All About Home Size

The biggest reason for the drop in the median price comes down to one simple thing: the size of homes being sold. The median price is just the middle point of all homes listed at any given time. So, if more smaller homes hit the market, the median price naturally drops. But that doesn’t mean home values are decreasing.

Think of it like this: imagine you have three coins in your pocket. If you line them up from lowest to highest, the one in the middle is the median. If you’ve got a nickel and two dimes, the median is 10 cents. If you have two nickels and one dime, the median becomes 5 cents. Did the value of a dime or a nickel change? Nope. That’s exactly what’s happening with the housing market right now. More smaller, less expensive homes are on the market, so the median price is coming down—but home values themselves are still growing.

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 Is the Key

 

A better way to measure what’s really happening with home values is by looking at the price per square foot. This is a much clearer indicator because it shows how much you’re paying for the space inside the home, regardless of size.

The median asking price doesn’t factor in home size, which is why it can be misleading. If we look at the national data, prices per square foot are still going up, even though the median price might show a decline.

Ralph McLaughlin, Senior Economist at Realtor.com, explains it perfectly:

"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 means that even though there are more smaller homes on the market pulling the median price down, the value of the average home is still on the rise. 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."

What This Means for You

So, before you start worrying about a price drop, take a closer look. Yes, the median price is down, but that’s not the same thing as a decrease in home values. The important metric to watch is price per square foot, which gives a better picture of what’s happening in the market—and those numbers are still climbing.

That said, remember that real estate is local. While national trends are helpful, every market has its own dynamics. The best way to understand what’s going on in your neighborhood is by connecting with a trusted local agent who can provide you with up-to-date insights.

Bottom Line

The drop in median price is mostly due to a surge of smaller, less expensive homes hitting the market. It doesn’t mean that home values are falling. In fact, price per square foot—a better indicator of real estate trends—continues to rise. If you’re curious about what’s happening in your specific area, don’t hesitate to reach out—I’m here to help!