Don't Believe the Next Shocking Home Price Headlines
If you're considering buying or selling a home, one of the most pressing questions you probably have right now is: what's going on with housing prices? And it's not surprising that you lack clarity on the subject. Part of the problem is the way headlines discuss costs.
They base their unfavorable news on a comparison of current statistics to previous years. However, this year cannot be compared to the 'unicorn' years (when property values reached unsustainable record highs). And now that prices are beginning to normalize, they're treating it as if it's a bad thing, instilling anxiety in people about what's to come. However, the worst of the housing price decreases are now behind us. What we are now seeing is a return to more regular home price appreciation.
To help make home price trends easier to understand, let’s focus on what’s typical for the market and omit the last few years since they were anomalies.
Let us begin by discussing seasonality in real estate. Every year, there are predictable ebbs and flows in the housing market. Spring is the busiest season for homebuyers, with the market at its busiest. This activity is usually still active in the summer, but it tends to decline as the cooler months approach. Seasonality affects home values because prices rise when something is in great demand.
That’s 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):
According to data from the last 48 years, home prices rise at the start of the year, but not as much as they do in the spring and summer markets. Because fewer individuals move in the cooler months, the market is less active in January and February. As the market enters the peak homebuying season in the spring, activity increases, and home prices rise significantly. Then, as autumn and winter arrive, activity slows down again. Price growth slows but continues to rise.
Why This Is So Important to Understand
In the coming months, as the housing market moves further into a more predictable seasonal rhythm, you’re going to see even more headlines that either get what’s 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'll misinterpret the slowing home price increase (deceleration of appreciation) that's characteristic of market seasonality in the fall and winter and believe prices are declining (depreciation). Don't let such headlines confuse or scare you. Instead, keep in mind that decreasing home prices are common as the months pass.
Let's talk about what's going on with housing prices in our neighborhood if you have any questions.