Some folks were cheered by the modest increase (0.3 percent) reported in the median price of existing homes sold in June. This news is not as positive as it first appears for three reasons: 1) The existing home data do not control for any changes in the mix of houses as sold (unlike the House Price Index or the Case-Shiller index). If we believe that the subprime meltdown has disproportionately affected those at the lower end of the market, the median house being sold today would likely be a higher end house than the median house sold in June of last year. 2) The data rely on contracted prices. It is now common in many areas for sellers to give kickbakcs to buyers at closing in the range of 2-3 percent of sale price. This is anectdotal (the practice is of questionable legality), but I have heard enough accounts from realtors to think that it would have a measurable effect on sales prices. 3) June sales data refer to closings. The contracts are typically signed six to eight weeks earlier, so that this data is reflecting housing market conditions in April and May. The new home sales data, which is based on contracts signed, will give a more up-to-date picture of the housing market when it is released later today. [And now we have that data. The median price of a new home fell 2.2 percent, year over year.]
--Dean Baker
