Median Selling Prices May Distort Reality

There's been a flurry of numbers out this week on the real estate market. Some were up, some were down and some were in conflict with others! Yesterday's WSJ had two housing articles on page 2 quoting two different sources for May home sales. The numbers were dramatically different! I've said it before: don't believe everything you read. Check it out or have someone you trust check it for you.
Here's another interesting concept that you should consider in evaluating future trends in the real estate market. Nationwide, foreclosures have accounted for as much as 50% of all recent home sales. When you add "short sales' to the mix the number goes up to 85% to 90%, especially in the lower price tiers and in our area. (Silicon Valley is a little less). But here's the rub.
When these distressed home sales are factored into the data in coming months, we're going to see some huge distortions.
Today, when we compare sales numbers (year-to-year), that data shows median home prices are still declining. But the large volume of distressed sales have dramatically lowered the recent median home selling prices. Price declines in the segments that are comprised of distressed sales are reflecting the foreclosure prices and the sheer number of these sales has year-to-year comparisons depicting almost the full brunt of that decline. In areas like ours where the inventory of lower priced homes has significantly declined of late and selling prices are reflecting multiple offers, etc., median prices are stabilizing or even rising. Future year-to-year price comparisons will reflect this rise in price in the base month.
Consider what happens when a home that sold at $1M in 2005 now comes to market and sells for $650,000. This could be a foreclosure caused by unemployment, a bad mortgage or just a seller caught needing to sell at the worst time. This 35% drop in price will get buried under the volume of other sales (today most all at entry-level price points) and will hardly affect the median price number. What we could witness is a rising median selling price while we are simultaneously experiencing significant price erosion at the middle and upper ends. These declines could be completely hidden if all one does is look at median prices.