From CraigsList: If Prices Are Rising, Why Are Some Homes Worth Less?

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This is a stretch, so bear with me. But it’s an attempt to explain how the median price of homes sold can be rising in Los Angeles, while at the same time the value of many individual houses is falling. It found it at the very active Los Angeles housing chatroom on CraigsList; I’ll summarize, but the entire thing is below.

Let’s say the value of every single house in LA declines by 10%. But at the same time, the bottom falls out of the market, meaning lower-priced homes don’t sell because subprime mortgages are drying up. The result is that the median price of homes sold actually increases, even though specific houses are dropping in value.

Note: To be clear, I don’t know whether that’s the reality in LA. One of the things I hope to accomplish on this blog is getting a better handle on this issue.

That said, here’s the full post:

Please allow me to explain... < NeverOddOrEven > 04/18 14:46:25

Let’s say this is your real estate market:

$400K
$420K
$440K
$500K
$550K
$600K -- median
$660K
$700K
$800K
$1000K
$2000K

Then there’s a subprime meltdown, and the bottom end falls out of your market. You’d expect to see this:

$550K
$600K -- old median
$660K
$700K -- new median
$800K
$1000K
$2000K

But you don’t. You see this:

$490K (was $550K)
$540K (was $600K) -- old median
$590K (was $660K)
$630K (was $700K) -- new median
$720K (was $800K)
$900K (was $1000K)
$1800K(was $2000K)

You can see, in this made-up example, that even with a 10% price drop, the median went up 6%.

That is, a $700K home is now going for $630K, but the median shifted from $600K to $630K because the bottom fell out.