Do not Be Confused by the Latest Home Price Headlines

Based on what you’re hearing in the news about home prices, you may be worried they’re falling. But here’s the thing. The headlines do not give you the whole picture.

If you look at the national data for 2023, home prices actually increased for the year. While this varies by market, and there were some months with slight declines nationally, they were the exception rather than the rule.

The overarching story is that prices went up last year, not down. Let’s dive into the data to set the record straight. 

2023 Was the Return to More Normal Home Price Growth

If anything, last year saw a return to more typical home price appreciation. To demonstrate this, consider what typically happens in residential real estate.

Annually, the housing market experiences predictable ebbs and flows. This is known as seasonality. It goes like this. Spring is the peak homebuying season, when the market is most active. That activity is usually still strong in the summer, but begins to wane toward the end of the year. Home prices follow along with this seasonality because prices grow the most when there’s high demand.

The graph below uses data from Case-Shiller to show how this pattern played out in home prices from 1973 through 2022 (not adjusted, so you can see the seasonality):

 

As the data shows, for nearly 50 years, home prices have matched typical market seasonality. At the start of the year, home prices rise more slowly. This is because the market is less active during January and February, when fewer people move. Then, as the market enters its peak homebuying season in the spring, activity picks up. This implies that home prices rise as well. Then, as fall and winter approach, activity slows and prices rise, albeit at a slower rate.

Now, let’s layer the data that’s come out for 2023 so far (shown in green) on top of that long-term trend (still shown in blue). That way, it’s easy to see how 2023 compares.

As the graph shows, as the year progressed in 2023, the rate of appreciation fell more in line with the long-term trend of what happens in the housing market. You can see that in how close the green bars come to matching the blue bars in the later part of the year.

However, the headlines primarily focused on the two bars highlighted in red. Here's some context that may have escaped you that will help you understand those two bars. Long-term trends show that home prices typically moderate in the fall and winter. That is typical seasonality.

And, because the 49-year average is so close to zero during those months (0.10%), it is not uncommon for home prices to fall slightly during those times. But those are only blips on the radar. Overall, home prices rose this year.

What You Really Need To Know

Headlines will focus on the small month-to-month dips rather than the larger year-long picture. And this can be misleading because it only focuses on one aspect of the overall story.

Instead, remember that last year we saw the return of seasonality in the housing market, and that’s a good thing after home prices skyrocketed unsustainably during the ‘unicorn’ years of the pandemic.

And if you are still worried about home prices falling, do not be. Prices are expected to rise this year as buyers re-enter the market, thanks to lower mortgage rates than last year. Buyer demand rises and more people relocate, while the supply of homes for sale remains low, putting upward pressure on prices.

Bottom Line

Do not let headlines about home prices confuse you. According to the data, overall home prices increased in 2023. If you have any questions about what you are hearing in the news or what is going on with home prices in our area, please contact us.

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