Why has the National Median Home Price Skyrocketed?

The national median price for a home has nearly doubled in the last 4-5 years. Locally our housing market hasn't risen much more than 15-20% in that time frame. It's as if the rest of the country is catching up to us. There is a lot more to a median price than just inflation. Few people have actually seen their personal home double in value over just the last 4 years. So how is it then that the median price has risen so much nationally?

The median home price is determined by taking every closed sale in a market or nationally and listing them from lowest to highest price. Then scroll down to the exact middle price and presto, there's the median. For example if 1000 homes closed in a month in a particular market, say for example Vancouver, WA, then we list them by price lowest to highest and look at the price of sale #500. This is very different than doing an average whereby you add up all the sales and divide by the number of sales to achieve an average. Averages and Median are fairly close when looking at large sample sizes such as the national average. In small samples like a local County or City the median tends to be wildly different than the average because averages can be swayed by a couple of abnormal large sales.

Trends in the market place can also affect the median home price. For example let's say an area has a bloated top end market because a major employer with lots of highly paid employees moved out of the area. Suddenly there are not many if any high ends sale in the 1 million plus price range. The local median will drop substantially due to the lack of high end sales. But the bottom and middle of the market may be humming right along. The 3 bed 2 bath classic that was selling for $500,000 before the big employer left, is still selling for $500,000. The lack of million dollar sales hasn't directly affected the sales of entry level and mid-level homes. In this scenario the median price has fallen say, 10% but the actual value of individual homes in the low to mid prices ranges could very well be rising. 

Nationally there has been a trend towards move-in ready homes. Fixers and obsolete homes have been a tough sell to Millennials. This means that many of the fixer homes are not selling and when the bottom of the market stops closing sales, the median moves up even if local prices are softening. You can literally be in a declining market with a rising median and we have seen this play out in many areas of the country. Boomers and Gen Xers were more likely to buy a fixer for the first or second home than Millennials have been. Get Z is not yet fully engaged in the housing market but I suspect they may be more inclined to look at fixers like the grandparents did.

This would certainly explain how the national median price has rose so much faster than the local market here. SW Washington State used to be about double the national median and now we are only about 20% higher. 

Another factor is move rate. There are many parts of the country with low housing costs that tend to have less moving. The higher end markets tend to see more move-ups whereas the lower priced markets have seen longer stays in homes. Many first time home buyers in parts of the country never sell or never move up. This means that nationally most of the sales are taking place in the high end markets rather than the low end markets thus moving the median up.

Yet another factor has been the West Coast and New England exodus to lower cost markets. These people have sold their often modest yet relatively expensive homes and then used that cash to purchase very nice homes in traditionally cheaper locations. This can add much higher than normal activity into the high end market thus moving the median much higher and faster than the actual market appreciation for existing homes. 

The last 4 years of hyper inflation has made the cost of building new homes much more expensive, and that certainly has played a significant role in the rise, but these other factors have exaggerated the median on a national scale.   

Keep in mind that just because a particular town or area has a higher median price, it does not necessarily mean that the type of house you want to buy or sell is higher. Here is a local example. Vancouver WA has a local median home price around $500,000 right now and next door to the east, Camas, WA has a median price of around $800,000. At first glance one might think that houses in Camas are 60% more expensive than they are in Vancouver. Well, that is simply not true. Camas has an up pressure median and Vancouver has a down pressure median. What does that mean? Camas has a large percentage of its real estate inventory in high-end expensive homes on the hill with a view. It might be safe to say that half or more of Camas is large view homes built in the last 30 years. This means that the bulk of sales in Camas are in affluent expensive neighborhoods thus driving the median higher. Vancouver sits on a massive inventory of 80 year old 2 bed 1 bath "Kaiser Cottages" that sell for less than $450k. Vancouver has just as many and probably a lot more high end view properties, but relative to the total inventory available these high end properties are a small percentage well under 20%. You see, Vancouver has 15 times the population of Camas. Access to all these entry level and sub-median prices homes pouts downward pressure on Vancouver's median price. The only way to actually tell which is more expensive is to compare like properties. A 30 year 3 bed 2 bath home in a classic middle class neighbor in Camas will run about $600k whereas that same house in Vancouver will run about $500k. So Camas has a median price 60% higher than Vancouver, but true comps will reveal that Camas is only about 20% higher than Vancouver. In the case of Washougal which has a similar lopsided hillside mansion ratio as Camas, Vancouver is actually more expensive on average for that classic 3/2 than Washougal despite Washougal's median being nearly 50% more.

The bottom line is this, your personal home or a type and style of home you may be looking for has almost certainly not doubled in price over the last 4 years, what has doubled is the median price for a home sold in the USA and much of that is based on the types of homes currently selling and the locations they are selling in. You can still find a lovely home in many parts of the country for under $200,000, just not here in SW Washington State.

Washington State is Bucking the West Coast Exodus Trend

Over the last few years, there has been notable news about California's shrinking population. It has been well known that California has had a massive exodus over the last several decades, but recently they have not had enough newcomers to offset those fleeing the state. The Californication of other states is a well known topic of discussion even here in Washington State.

Another less discussed but equally disturbing trend is the fact that Oregon has now seen a statewide population decline. Much of that is likely driven by the mass exodus in Portland, many of whom fled to Southwest Washington. 

But Washington State has continued its impressive population growth. Although Arizona is growing at a faster clip than we are, we are still growing. Seattle is still growing, despite its problems of late. In fact, Seattle for the first time ever, has a larger population than San Francisco. This is a culmination of strong growth in Seattle and San Francisco's rapidly shrinking population.  

So why is Washington State the ONLY west coast state growing? It's the economy. Many people know that California has a strong economy, but on a per capita basis, Washington's is even stronger. California's economy is growing through mostly inflation at this point as businesses are fleeing that state in mass. Meanwhile, in Washington State new business is arriving to our state. Unfortunately the idiots in Olympia are passing laws that look allot like the failed laws that were passed in California and have led to that state's decline. 

Will Washington continue to grow or is the Californication complete? It is hard to say at this point but locally here in Southwest Washington we are likely to remain in a strong growth mode as we siphon off more and more business and people from Portland.

What does all of this mean for real estate? It means, that outside of a major national recession, we should continue to see favorable growth trends and rising property values. 

Just a little more rate relief is all we need.

After we enjoyed years of sub-market rate interest we have to get used to higher rates. The government as usual displayed poor execution not he rate increase int he summer of 2021. Rather than a gradual climb they did a massive fast increase that startled the real estate market and apply emergency braking in a situation that only needed gentle braking. 

Our market would make a nice mild comeback with a couple of 1/4 point reductions in the average mortgage rate. If we can get a typical 30 year fixed mortgage down to the low sixes, then AAA credit would drop into the high fives and mediocre credit buyers in the upper sixes this market will enjoy more sales. I do not think we will go into a hysterical frenzy, but we certainly will get a much needed boost in volume.

The Fed has moved cautiously towards a rate reduction plan and I believe this will lead to improved volume without any real upward price pressure. Let's hope they don't screw it up like they did in '21. We are moving in the right direction.

SW Washington Market still pretty warm.

Our local market isn't on fire like it was a few years ago, but it remains toasty warm. Inventory levels are creeping up but see favor seller's. The tight lending market however has put the squeeze on buyers so even though inventory is tight the supply of qualified buyers is almost equally tight. It's a bit of a standoff.

Buyers looking for some leverage should look at houses that are a little odd. That house on the flag lot with the bumpy driveway might be a value since most buyers have a difficult time looking past basic curb appeal problems. 

I have a fantastic listing right now well under market but it has an odd entrance and basically no yard. But 2100 squares on one level with 4 beds and 3.5 baths at four and a half is a steal. Some buyers just can't get out of their own way.

Buyers look for these types of properties, they are your ticket to an affordable option in this crazy real estate world we are living in right now.

Think outside the box and you will find a house that gives you most of what you want at a price you can afford.