If you are thinking of buying or selling a home, one of the biggest questions you have right now is probably: what is happening with home prices? And it is no surprise you don’t have the clarity you need on that topic. Part of the issue is how headlines are talking about prices.
They are basing their negative news by comparing current stats to the last few years. But you can’t compare this year to the ‘unicorn’ years (when home prices reached record highs that were unsustainable). And as prices begin to normalize now, they are talking about it like it is a bad thing and making people fear what is next. But the worst home price declines are already behind us. What we are starting to see now is the return to more normal home price appreciation.
To help make home price trends easier to understand, let’s focus on what is typical for the market and omit the last few years since they were anomalies.
Let’s start by talking about seasonality in real estate. In the housing market, there are predictable ebbs and flows that happen each year. Spring is the peak homebuying season when the market is most active. That activity is typically still strong in the summer but begins to wane as the cooler months approach. Home prices follow along with seasonality because prices appreciate most when something is in high demand.
That is why, before the abnormal years we just experienced, there was a reliable long-term home price trend. The graph below uses data from Case-Shiller to show typical monthly home price movement from 1973 through 2021 (not adjusted, so you can see the seasonality):
As the data from the last 48 years shows, at the beginning of the year, home prices grow, but not as much as they do entering the spring and summer markets. That is because the market is less active in January and February since fewer people move in the cooler months.
As the market transitions into the peak homebuying season in the spring, activity ramps up, and home prices go up a lot more in response. Then, as fall and winter approach, activity eases again. Price growth slows, but still typically appreciates.
Why This Is So Important to Understand?
In the coming months, as the housing market moves further into a more predictable seasonal rhythm, you are going to see even more headlines that either get what is happening with home prices wrong or, at the very least, are misleading. Those headlines might use a number of price terms, like:
Appreciation: when prices increase.
Deceleration of appreciation: when prices continue to appreciate, but at a slower or more moderate pace.
Depreciation: when prices decrease.
They are going to mistake the slowing home price growth (deceleration of appreciation) that is typical of market seasonality in the fall and winter and think prices are falling (depreciation). Don’t let those headlines confuse you or spark fear. Instead, remember it is normal to see a deceleration of appreciation, slowing home price growth, as the months go by.
If you have questions about what is happening with home prices in our local area, let’s connect.