Low Median Home Prices are Unrealistically Distorted

In a discussion with a very wise colleague, he pointed out that the median pricing reports are not truly identifying values of all properties and is actually distorting valuations. The reason for this is that one segment of the market (the higher-priced homes) is not really "open for business" due to the lack of jumbo loans. This means that the median price reports skew to the lower priced houses, which are the majority of most markets right now.

He described it as a "product-mix change" in the market, rather than an overall drop in values. In other words, in a market that once had 40% of its sales above $700,000, and now only has 5% of its sales in that price range, the median price drops, but the value of the $700,000 house does not drop at the same rate.

Many consumers read these reports and have the impression that their house value has dropped a lot more that it really may have. If someone bought a $2 Million house 3 years ago, and the median prices of homes in the area have dropped 50% in the same time frame, that house is not necessarily worth only $1 Million now. I contend that its value is much higher because the median pricing reports have an abundance of low-priced homes dragging the median down.

I am curious if you agree with this thinking, and if so, how are you explaining it to buyers and sellers of more expensive properties?

Let me know what you think.