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Round two of the credit crunch, in which getting a mortgage became more difficult and expensive for many creditworthy borrowers, has begun to show up in the home price data.

The size-adjusted median price fell for the month by 3.1 percent for condos and 2.0 percent for single-family homes. This brings the size-adjusted median condo price down 9.6 percent for the year and 15.4 percent since the peak in November 2005. The size-adjusted single family home median is down 5.6 percent since last year and 11.2 percent since its peak.

This decline isn’t actually all that different from what we’ve seen in recent months. The credit crunch really made itself known in the “plain vanilla” median. As you may recall, the subprime mortgage tightening caused a dropoff in sales of lower priced homes, which caused comparitively more high-end homes to be sold, which caused illusory strength in both the size-adjusted median and especially the vanilla median. When the credit crunch hit the more affluent borrowers recently, the volume decline in high-end home sales started to match that of low-end homes.

As expected, the illusory strength in the median price is now disappearing. The decline in the median condo price, which was down 2.8 percent, was not too dramatic. But the median price for single family homes — the market in which most of the high-end buyers dwelt — was down a whopping 7.0 percent in one month.

Home prices didn’t actually fall 7 percent in a month, of course. This sharp decline in the single family home median is as misleading is the median’s early-2007 rise. It’s simply the case that the statistical distortion that once caused median prices to be overstated has suddenly disappeared.

I’ve often discussed the problems with the median-based price indicators; the above paragraph provides a perfect example of the inaccuracies to which they are prone. The only reason I even write about the vanilla median is because it is inexplicably the favorite price indicator of most housing commentators. It will be interesting to see what the pundits have to say about this month’s median price data.


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