Homes Prices Down--Except They're All Up

James Hamilton at Econbrowser has a great post about the median home price report.

using the quarterly figures, where did that 1.7% drop come from? Certainly not from the Northeast, where prices were up 19%. Nor did it come from the Midwest (up 4.0%), nor the South (up 0.7%), not the West (up 1.6%).

Hmmm....There are only four regions in the Census database, and the median price was up, not down, in every single one of them, (a point also noted by my esteemed colleague over at Macroblog, who rarely misses much).

But how, you might ask, can house prices have risen everywhere and yet the national median shows a decline? The answer comes from composition effects. The number of homes sold in the South fell by less than it declined in the West. Thus homes in the South represented 49% of the 2005:Q3 sample and 55% of the 2006:Q3 sample. Because the median home in the South costs just a little over half as much as the median home in the West, any shift in the fraction of recorded home sales that are coming from the South would translate into a reduction in the U.S. national median sales price, even if the price of every single home in America had gone up.

My original comment on the data mentioned the possibility of composition effects, but Hamilton did the work to pull them out.