Median Home Price - Home Affordability Concerns In February 2022

If you want to understand how prices and values are moving in the housing market, it starts in the middle. Why the middle?

Because the middle of the market tends to be more useful due to its consistency as it is less affected by outliers that tend to move the market higher when using an average. For example, back in 2009 as home prices were dripping, the Golden Eagle Plantation neighborhood in Northeast Tallahassee was reporting an average home price that was 24% higher than the previous year, yet it was clear the prices were still dropping. It turns out that the largest home in the neighborhood sold for roughly 5 times the average price, thus the average was skewed much higher. The median, however, hardly budged.

The "median" home is the "one in the middle" when you line up all the homes that have been sold and arrange them in the order of what you are measuring. So, the median home price is the home in the middle after organizing all home sales by price.

Regardless of your price range, this report provides real estate consumers with valuable insight into present activity in the Tallahassee real estate market and provides a foundation for understanding the overall movement and pace of home prices and home values right now. For our readers not located in Tallahassee, I can tell you what you will read here is very likely going to mirror your market too, though actual prices and values might need to be adjusted. The benefit you'll receive is to understand how the market segments are performing.

In today's report, we'll look at the median home price, median home value, and median home size in two separate ways. Additionally, we'll compare the current real estate appreciation rate with past years' rates in order to provide a potentially disturbing forecast for the future.

Our report begins with a look at the active listings priced near today's median home price. Note how many of them are already under contract with a buyer. The market (in the middle) remains inundated with active buyers!

Median Priced Homes For Sale In Tallahassee

How Tallahassee Compares

Home affordability will become the hottest topic related to the economy and specifically the real estate market. Home prices are soaring, rents are soaring too.

Earlier I mentioned that the Tallahassee housing market is a fair bellwether for the overall US housing market, and I have found a good way to demonstrate my point. I was curious to see how Tallahassee’s home price growth compared with that of the US overall, and the results were interesting. The median home price graph below certainly supports this point of view. 

Over the past 31 years, the median home price in the US has risen 4.03% annually, while the median price of homes in Tallahassee over the same period has risen 4.00% annually. I would say that is pretty darned close to identical.

Tallahassee usually has a bit of a lag in the results when compared to the US. For example, the median US home price peaked in 2006, whereas the median home price in Tallahassee peaked a little later in 2007 (I think the heat down here makes us slower to respond ).

Overall, the median home price in the US fell further than did the median home price in Tallahassee, and I believe that is why we’ve seen the bounce-back from the bottom to be stronger in the US overall (at 6.32%) than in Tallahassee (at 4.77%).

Whether you are in Tallahassee and you are taking in my US housing reports, or you are elsewhere taking in my Tallahassee housing reports, you should know that the information very likely matches (with prices and values adjusted) to nearly all US housing markets.

When reporting on single-family homes, most real estate reports combine the sales of single-family detached homes, townhomes, and condominiums. We’re going to dig a little deeper to uncover that each home type is performing differently. The first set of graphs segments the market by property type, while the second set separates new homes from existing homes.

The Median Home Price In Tallahassee

This graph examines the median home price, segmented by property type. What it reveals is that the median single-family detached home price is moving higher at a faster rate than is the median single-family attached home price.

In the graph above, detached homes are plotted in red, while attached homes are plotted in blue (solid line for townhomes and dashed line for condominiums).

The median home price for single-family detached homes continues to set new all-time highs, leaving the past high years well behind it. Townhomes have also reached new all-time highs, but that is not the case for condominiums. The median condominium price continues to struggle due to the oversupply of high-rise units downtown.

Here's how the median home price has changed since the previous market peaks in 2006 and 2007:

• Single-Family Detached Homes: UP 34% since 2007
• Townhomes: UP 7% since 2006
• Condominiums: DOWN 23% since 2006

It really is just the detached homes that have exploded higher, but you can expect the rest to follow suit as detached inventories shrink. Low mortgage interest rate loans have enabled buyers to increase the amount they pay for homes without increasing their monthly mortgage payments. This fuel for the market might be thinning out as interest have already moved 1/2% higher in 2022, and perhaps are getting ready to move even higher.

The relative supply of homes for sale remains near an all-time low, allowing sellers to demand more money for their homes. How prices move this year (I believe) is set in stone. Higher! The rate at which they move will be determined by the pace at which mortgage interest rates rise.

Tallahassee Median Home Value

Much like the median home price, the median home value is moving higher rapidly for two of the three property types.

Single-family detached homes and townhomes are finding new highs while condominium units are still struggling.

Here's how the median home value has changed since the previous market peak in 2006:

• Single-Family Detached Homes: UP 25% since 2006
• Townhomes: UP 11% since 2006
• Condominiums: DOWN 24% since 2006

The market has always favored detached homes, but the disparity in the recovery in values (I believe) relates to the type of buyers in the market. Back in 2006, there was an unhealthy percentage of inorganic buyers (people who were not buying to use the property, rather they were speculating on flipping homes for profit).

Plenty of buildings were converted to condominiums and the speculators found great returns until the market was glutted with supply and values started falling. This is clear in the graph.

Due to the unattainability of detached homes, townhomes are finally moving higher at a faster pace, while the road to recovery for condominiums is much bumpier. The downtown condominium market still has a glut of supply and now 15 years after their birth, there has not been a strong sign from the market that there is significant demand for this product.

It seems that one result of the COVID-19 pandemic, at least during its first two years of life, is a reduced desire for vertical urban living spaces during a time in which we are all trying to socially distance ourselves from our neighbors. It will be interesting to see how this resolves long-term as the treatments and vaccines for the virus become more effective and more common.

Median Home Size

This next graph tracks the median home size by property type.

I always like to include "size" graphs whenever we study prices and values. A change in the median home size is usually the difference between what buyers are spending and what sellers are getting.

It's common for prices and values to move at different paces. For example, now that mortgage interest rates are moving higher fairly rapidly, it's going to create some sticker shock and home affordability issues among buyers. This means that demand should weaken.

But at the same time, inventory is near record-lows, builders are not producing at historically-normal rates, so the supply of homes for sale will still be too low for the new lowered demand. Homes will still be appreciating in value. When the year is over, I expect home prices will have moved higher, but home values will have moved higher at a faster rate. This suggests that we'll see the median home size decline.

Over the long haul, prices and values typically move along similar growth lines, just with variances along the way. But during the short-term (like what we'll see in 2022), it's very helpful to see how prices and values vary and then use the current trends to forecast the near future.

The median home size graph shows that today's buyer is purchasing larger townhomes and single-family detached homes than they were during much of the housing bubble formation.

With the strength of available low mortgage interest rate loans, buyers have been spending more money, buying bigger homes than they could if interest rates were higher. Now that rates are moving higher, we can expect to see the median home size move lower.

The first portion of our report segmented the market by property type, but the next three graphs segment the market between new construction and existing homes. This critical view of housing formations makes it clear why we are seeing such extreme market conditions today.

Median Home Price

This graph shows the median home price of new homes (blue), existing homes (red), and then the overall median home price (gray).

Through just one month in 2022, we find that the median new home price has moved nearly 22% higher than last year's median. Is this just a short-term glitch in the data or a sign that supply chain issues have rocked new home construction? I suspect it might be a bit of the former but more of the latter.

From 2013 through 2020, the median new home price only moved about 5% higher, an annual growth rate of less than 1%. But the median new home price moved more than 7% last year and if current numbers are to be believed it means that new home prices moved 5% in an eight-year period followed by 30% in a two-year period. Can you see why home affordability is so threatened today?

So how will this impact the resale market? Existing homes saw the median home price move 41% higher from 2013 through 2020, which is an annual growth rate of more than 5%! But resale prices slowed to 7% growth last year and are currently showing a 1% through January.

Now before we go saying home prices are falling after just one month, we have to give the market some time to accumulate data. There are almost always several months of the year where the median price falls during one month, even during an epic move higher.

Today, the median new home price of $398K is 74% higher than the median existing-home price of $229K. Overall, the median home price of all homes is $250K.

Median Home Value

This next graph reports the median home value of new homes (blue), existing homes (red), and then the overall median home value (gray).

I believe the best measurement for real estate appreciation in a market with sufficient sales is the movement of the median existing-home value over time. In 2021, existing homes appreciated at 11.4%, more than three times the average we saw in the 1990s. This is alarming as it is toxic to home affordability

Note that the builders had been holding their costs fairly steady until last year, but the issues we've been warning about seem to have new construction costs soaring. While some of these soaring costs are directly COVID-related and will soften, others are not. I'll be curious to see how the 75%+ increase in the minimum wage that Florida is undergoing does to the cost of new homes and how that impacts the production of the homes our market so badly needs. I am not optimistic.

New Construction Premium

With the recent surge in the cost of new construction, the "premium" that a buyer pays for a new home has reversed direction and remains far higher than its historic average.

The graph above plots the median new home cost in red and the median existing-home value in blue (with each measured in price per square foot) for the past 30 years.

We measure the trend of the difference of the two in gray (highlighted in yellow) and plot this percentage on the right vertical axis. This gray line is something we refer to as the new construction premium, the “extra” percent that new home buyers are paying to get a brand new home. 

During the 1990s, lots were fairly cheap, and so too were the sticks, bricks, and labor it took to bring a new home to the market. Thus, the median new home cost (on average) just 5% more than existing home values, though it was not uncommon to see this jump above 10% for small periods of time.

The graph above shows how things have changed over the past twenty years. As the market began to collapse in 2006, we saw the new construction premium rise. By 2011, it had pushed higher than 40% and continued even higher to more than 55% in 2014. When the market finally balanced in 2016, we saw the premium sitting near 45% (meaning the median new home cost 45% more dollars per square foot than did the median existing-home).

The huge difference between new and used home values left builders in a cautious state and the market began to move into a depleted inventory state, causing existing home values to move higher at a faster rate.

Since that time, with builders producing fewer homes than the market demanded, we've seen the premium drop below 22%, only to change direction with rapidly rising new construction costs. Right now, with the market containing far too few homes for today's heightened rate of demand, I believe soaring new construction costs are only going to create extra inflationary pressure on existing home values. This will be a major punch in the gut to home affordability in 2022.

Unlike what we saw in 2006 when cooling demand commenced in an over-supplied market, I believe the cooling demand in 2021 or 2022 will begin with an under-supplied market and thus we'll see banks reel in builders before a large oversupply can occur. Additionally, the cooling demand will make the relative supply of homes increase, helping to move in the direction of traditional conditions that are not so frantic for buyers.

Median Home Size

The next graph in today's report shows the median home size of new homes (blue), existing homes (red), and then the overall median home size (gray).

When I look at this graph, I immediately see how builders (blue bars) respond to changing market conditions. When the market was at its peak in 2006, the median home size was at its smallest. Following the market bottom in 2012, the homes in 2013 were the largest. Today, we're seeing new homes getting larger, which has me scratching my head. Perhaps it's related to low mortgage interest rates that allowed them to sell homes at higher prices.

Typically, when builders are struggling, they deliver more square feet for the money. And the opposite is true when times are good, the home you get for the dollar is smaller. With this in mind, I expect to see the median home size for new homes decline when mortgage interest rates begin to rise substantially.

Real Estate Appreciation

The final graph in this report provides a great visual of how homes have appreciated in Tallahassee.

This graph plots the median existing-home value each year and reveals the impact that the diminished inventory of homes for sale is having on home values. The market has been undersupplied since the end of 2016, so home values have been soaring at an accelerating rate.

I am fairly confident that the 1.2% decline in January is not a reason to think that we'll see values drop this year. As I stated earlier, the median home value usually dips from month to month at any given time of the year. However, if we're seeing this in our next report, I will be surprised.

The demand for homes remains lower than the peak market years of 2005 and 2006, and probably lower than last year due to rate hikes in the mortgage market. With new construction representing only 10% of the inventory though, the declining demand will result in declining supply at the same time (as many buyers also have a home to sell).

The continuing inventory shortage is only going to increase the pressure on home values. Yes, it's nice to see home values rise, but double-digit appreciation has been eroding home affordability and could very well convert our market to one of haves and have nots.

The relative supply of homes reached new lows in 2021, and the bidding wars extended to more price ranges than we had seen in the past. I do not see bidding wars going away this year, but we'll likely see fewer of them at the higher price points.

Despite the movement of the market in early 2022, my advice remains unchanged. If you are happy where you are and believe it's the right home for you for the next ten years, stay and enjoy it. You might have missed your window of opportunity for refinancing, but I would still check with a mortgage lender to see if you can lower your payment (as today's rates are still incredibly low, below 1/2 of the 8-year average).

But if you think a move is something you'll need within the next ten years, you should aggressively pursue it today. I expect home prices to rise, and mortgage interest rates to rise too. Not only will homes become more expensive, so too will the money you'll need to borrow to buy the next home. This will price out many traditional move-up buyers in the future. Don't let this be your fate!

When moving to, in, or from Tallahassee, you will fare better if you work with a local expert. We are here to help. If you have further questions on the Tallahassee real estate market, you can leave a comment below, give us a call at (850) 366-8917, or drop us a note and we'll give you the local information needed to ensure a successful, smooth transaction.

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