Are House Prices Increasing or Decreasing? It Depends...
The media's coverage of what's going on with housing prices can be perplexing. A major portion of this is down to the type of data used and what they choose to highlight. When comparing home values across different time periods, two methodologies are used: year-over-year (Y-O-Y) and month-over-month (M-O-M). Here's a breakdown of each.
- This comparison measures the change in home prices from the same month or quarter in the previous year. For example, if you're comparing Y-O-Y home prices for April 2023, you would compare them to the home prices for April 2022.
- Y-O-Y comparisons focus on changes over a one-year period, providing a more comprehensive view of long-term trends. They are usually useful for evaluating annual growth rates and determining if the market is generally appreciating or depreciating.
- This comparison measures the change in home prices from one month to the next. For instance, if you're comparing M-O-M home prices for April 2023, you would compare them to the home prices for March 2023.
- Meanwhile, M-O-M comparisons analyze changes within a single month, giving a more immediate snapshot of short-term movements and price fluctuations. They are often used to track immediate shifts in demand and supply, seasonal trends, or the impact of specific events on the housing market.
The key difference between Y-O-Y and M-O-M comparisons lies in the time frame being assessed. Both approaches have their own merits and serve different purposes depending on the specific analysis required.
Why Is This Distinction So Important Right Now?
We're about to enter a period in which home values may be lower than they were in the same month last year. April, May, and June of 2022 were three of the strongest months in the history of the American housing market for home prices. Those same months this year may fall short. That is, the Y-O-Y comparison will most likely suggest that values are declining. The numbers for April seem to suggest that’s what we’ll see in the months ahead (see graph below):
This will generate alarming headlines claiming that home values are plummeting. That will be correct on a year-over-year basis. Moreover, those headlines will encourage many people to believe that property values are currently falling.
However, on a closer look at M-O-M home prices, we can see prices have actually been appreciating for the last several months. Those M-O-M numbers more accurately reflect what’s truly happening with home values: after several months of depreciation, it appears we’ve hit bottom and are bouncing back.
Here’s an example of M-O-M home price movements for the last 16 months from the CoreLogic Home Price Insights report (see graph below):
Why Does This Matter to You?
So, if you see unfavorable news concerning home prices, keep in mind that it may not be entirely accurate. We'll be comparing prices to last year's record high for the next four months, which may make the year-on-year comparison appear more negative. However, if we look at the more recent month-to-month statistics, we can see that housing prices are on the rise.
There is a benefit to purchasing a home now. You'll get a deal at a lower price than last year before costs begin to rise even more. It's referred to as "buying at the bottom," and it's a wonderful thing.
Let's talk if you have any questions about what's going on with home prices or if you're ready to buy before prices rise even higher.