It’s understandable that you don’t have the answers you require on this subject if you’re considering buying or selling a home. The way headlines discuss prices is one aspect of the problem.
They are basing their bad news on an analysis of recent statistics. However, this year cannot be compared to the “unicorn” years, which saw unsustainable record-high home prices. And now that prices are starting to stabilize, they’re talking about it as if it’s a bad thing, making people worry about what will come after. But the worst price drops for homes have already passed. The return to more typical home price growth is what we’re starting to observe right now.
Let’s concentrate on what is typical for the market and ignore the past few years since they were outliers in order to make home price trends easier to understand.
Let’s start by discussing seasonality in real estate. Each year, the housing market experiences predictable ups and downs. The busiest time of year for home sales is in the spring. The summer months are typically when that activity is still at its peak, but as fall approaches, it starts to slow down. Because prices increase the most when something is in high demand, real estate prices fluctuate seasonally.
Because of this, there was a trustworthy long-term home price trend prior to the unusual years we just went through. The graph below, which uses Case-Shiller data, illustrates the typical monthly change in home prices from 1973 to 2021 (without any adjustments so you can see the seasonality):
According to data from the previous 48 years, home prices rise at the beginning of the year, but not as quickly as they do as the spring and summer markets open. Because fewer people move during the colder months, the market is less active in January and February. Home prices rise significantly as activity increases as the market enters the spring’s busiest season for home purchases. Then, as fall and winter draw near, activity declines once more. Even though price growth slows down, prices still generally rise.
Why Understanding This Is So Important
You’ll start to notice more headlines that are inaccurate about the state of home prices in the upcoming months as the housing market settles into a more predictable seasonal rhythm. Any number of price terms, including:, could be used in those headlines.
- 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 will believe prices are dropping (depreciation) when there is actually a slowing of home price growth (deceleration of appreciation), which is typical of market seasonality in the fall and winter.Don’t let the headlines scare or confuse you. Instead, keep in mind that it’s typical to observe a slowdown in the rate of appreciation as the months pass.
In conclusion, if you’re considering buying or selling a home, it’s important to understand the current state of the market. While headlines may create fear and uncertainty, we can see that we’re returning to more stable home price appreciation trends. By understanding typical market cycles, the importance of location, and the value of working with a reliable real estate professional, you can make informed decisions about your real estate investments. Remember, while the market may fluctuate over time, having a solid understanding of home price trends will set you up for success in the long run.