Median vs Repeat Sales Index House Prices

Most analysts expect house price growth to slow sharply in coming months. For example, in May I wrote: What will Happen with House Prices?

However, the most recent Case-Shiller report showed house prices were still up 19.7% year-over-year (YoY) in May, only down slightly from the 20.6% YoY increases reported for March and April.

However, the Case-Shiller Home Price Indices for “May” is a 3-month average of March, April and May closing prices. So “May” closing prices include some contracts signed in January, so there is a significant lag to this data.

Perhaps the timeliest house price report for existing homes is the monthly existing home sales report from the National Association of Realtors® (NAR). Each month the NAR reports the median prices for closed sales. Note: Median prices are distorted by the mix (repeat sales indexes like Case-Shiller and FHFA are probably better for measuring prices).

But even the median price is lagged. For example, the recently released June report was mostly for contracts signed in April and May.

Here is a graph comparing the YoY change in the NAR median prices vs the Case-Shiller National Index:

The YoY change in the median price peaked at 25.2% in May 2021 and slowed to 13.3% in June (still very strong increase in YoY prices). The median price is not seasonally adjusted, and typically declines in July, and I expect a larger than normal decline this July.

In general, the median price leads the Case-Shiller index, and I expect the Case-Shiller to show significantly slower YoY growth over the next several months.

The bottom line is we have to be patient waiting to see the impact of the housing slowdown on house prices due to the significant data lags.

Note: New home prices (average and median) declined sharply in June. New home prices are reported when contracts are signed, so this is an early indicator of weaker prices. However, new home prices are impacted significantly by the mix of homes sold, so this doesn’t mean existing home prices are falling.