August’s drop in the median sales price is one of the largest on record — should we be worried?

Last week I posted my monthly report on the Reno-Sparks housing market. The big surprise in August’s data was the huge drop observed in the median sales price. August’s median home sold price was $370,000. Compare that number to July’s median sales price of $389,000, and you’ll see a whopping 4.9 percent one-month drop in the median sales price.

I remarked in last week’s report that the current median home price has now returned to levels not seen since early spring. Are prices taking a breather from climbing to their record-setting highs? Is this a correction? A signal of things to come? Or a one-month abnormality?

I wanted to dig a little deeper to put some perspective on a price drop of this magnitude. The first thing I did was look at historical data to see if our market had ever experienced such a drop in the past.

The Crash

Longtime readers of this blog will recall that the run-up in home prices during the housing bubble reached an all-time high of $365,000 in January 2006. Leading up to that time there was much discussion [on this blog and elsewhere] about a “bubble”; how high housing prices would climb; and when would the bubble burst.

No one knew in January 2006 that that month’s median home price of $365,000 was the peak — and why would they think so? Home prices had been climbing for years — albeit the increases had accelerated to a pace never before seen. [See the chart below.]

Additionally, the previous year (2005) saw a couple one-month drops in the median home price, but prices had always jumped back up. For example, September 2005 saw a 1.7 percent drop, but then prices rose 1.4 percent in October. Similarly, November 2005 experienced a hefty 3.0 percent drop, but then home prices rebounded 1.8 percent in December, and then climbed another 2.8 in January 2006 to reach a new record high. Nothing to worry about, right?

The following month everything changed.

In February 2006 the median sales price plunged an incredible 8.2 percent — coming in at $335,000 — a full $30,000 drop from January’s peak. That caught everyone’s attention and set in motion a sell-off and plummeting of home prices that continued for six years. [See chart below.]

From January 2006 to January 2012 the median home price crashed an incredible 63.0 percent — pushing prices all the way back to 1997 levels.

That 8.2 percent drop in the median sales price back in February 2006 was noteworthy on many levels.

The Recovery

After hitting bottom in January 2012 home prices turned the corner and began an upward trajectory that continues today. In my search for large one-month drops I decided to focus on the years since the market bottomed in 2012.

In the 68 months since January 2012 there have been 21 one-month price drops in the median sales price. […which also means 47 months have seen price increases.]

Most of these 21 price drops have been in the 1 – 3-percent range. But a handful have exceeded that range. Here are the five greatest one-month decreases since January 2012 from highest to lowest.

So, as can be seen above, last month’s drop in the median sales price, though atypically large, is not unheard of. It is noteworthy in that since the turnaround in 2012, last month’s decrease in the median sales price was the 2nd-largest on record. But is it cause for alarm?

Given the current market conditions, namely buyer demand relative to tight inventory supply, I anticipate prices rebounding next month.

As always, I welcome your thoughts and comments.

About Guy Johnson

I am a licensed Nevada REALTOR® living and working in Reno, Nevada. Give me a call at 775-722-4011. My team and I will be happy to assist you with your real estate needs.
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6 Responses to August’s drop in the median sales price is one of the largest on record — should we be worried?

  1. Cristy Silverman says:

    This is great insight, Guy. I am looking forward to your report next month to see if this is a sign of a correction or an abnormality.

  2. Guy Johnson says:

    Thank you, Cristy. Yes, I’m looking forward to September’s numbers as well.

  3. Tim Weber says:

    Thank you Guy! We all benefit from research and analysis like this. Great stuff.

  4. Guy Johnson says:

    You are welcome, Tim. I’m happy to hear you found the analysis useful.

  5. Greg Parklane says:

    The market has to adjust to the Reno-Sparks demographics, always has, always will. Not too worried for housing under 350K (1,600/mth) mortgage, but I’m noticing inventory is getting a bit stale at 500K and above. Not coincidentially, this is where the supply is greater than the number of people affording a mortgage over 2.5K per month, and getting the necessary down. I’m thinking 360K will be a good number to take us through the winter months.

  6. Guy Johnson says:

    Thank you for your comment, Greg. Much appreciated.

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