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.
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.
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.