If you're currently considering buying or selling a home, you're likely wondering about the status of home prices. However, the topic might be unclear due to how headlines are presenting the information.
These headlines are often comparing current data to the past few years, which were considered exceptional or "unicorn" years with record-high, but unsustainable, home prices. As prices now begin to stabilize and return to more normal levels, they are portrayed negatively, creating fear among people about what might come next. Yet, the most significant declines in home prices have already occurred.
To understand home price trends better, let's focus on the typical market behavior and exclude the last few years, which were anomalies.
Seasonality plays a vital role in the real estate market. Each year, there are predictable patterns of activity. Spring is the peak homebuying season when the market is most vibrant. The summer follows with robust activity, but as the cooler months approach, the market's pace tends to slow down. Home prices are influenced by this seasonality, as they tend to appreciate the most when demand is high.
Before the unusual years we recently encountered, there was a consistent and reliable long-term trend in home prices. The graph below utilizes Case-Shiller data, showing the regular monthly movement of home prices from 1973 through 2021 (without adjustments, so seasonality is visible).
Over the past 48 years, the data clearly illustrates that home prices experience different rates of growth throughout the year. At the beginning of the year, prices tend to increase, but the growth is not as substantial as what is observed during the spring and summer markets. This is because the real estate market is less active in January and February, as fewer people tend to move during the cooler months. However, as the market enters the peak homebuying season in spring, activity intensifies, resulting in more significant increases in home prices. Then, as fall and winter approach, activity eases again, and while price growth slows down, there is still typically an appreciation in home prices.
Understanding this seasonal rhythm of the housing market is crucial because it will help you interpret headlines more accurately in the coming months. You may encounter misleading headlines that use various price terms, such as "appreciation" for price increases, "deceleration of appreciation" for slower growth, and "depreciation" for price decreases. These headlines might mistake the typical slowing of home price growth during fall and winter (deceleration of appreciation) as a sign of falling prices (depreciation). It's essential not to be confused or alarmed by such headlines. Remember that seeing a deceleration of appreciation and slower home price growth as the months progress is entirely normal.
In conclusion, if you have any questions or concerns about the current state of home prices in your area, it's best to consult a reliable real estate professional who can provide accurate and up-to-date information.
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