Decoding Home Prices: Beyond the Headlines
When you're considering buying or selling a home, the burning question on your mind is undoubtedly about the current state of home prices. However, finding clarity on this matter can be challenging, and part of the problem lies in the way headlines portray the situation.
Media outlets often create negative news by comparing present-day statistics to the exceptional 'unicorn' years when home prices reached unsustainable record highs. But it's unfair to compare the current year to those anomalies. As prices begin to stabilize and return to more normal levels, these headlines are instilling fear in people. The good news is that the worst home price declines are already behind us, and we're witnessing a return to more typical home price appreciation.
To better grasp home price trends, let's focus on what's usual for the market and disregard the last few years, which were exceptional cases. Understanding seasonality in real estate is key to this comprehension. Throughout the year, there are predictable ups and downs in the housing market. Spring typically sees the peak of home buying activity, while the summer remains strong but gradually tapers off as the cooler months approach. Home prices follow this pattern because they appreciate the most when demand is high.
Before the extraordinary years we recently experienced, there was a consistent long-term trend in home prices. A graph using data from Case-Shiller from 1973 to 2021 (without adjustments for seasonality) illustrates this pattern. Home prices generally experience moderate growth at the beginning of the year, with a significant upsurge during the spring and summer markets when activity is at its peak. As fall and winter arrive, activity subsides, and price growth slows down, although still showing appreciation.
Understanding this seasonal rhythm is crucial because in the upcoming months, you're likely to encounter headlines that may inaccurately describe the state of home prices or mislead readers. Terms like "appreciation," "deceleration of appreciation," and "depreciation" may be used, which can create confusion and fear. The truth is that the slowing down of home price growth (deceleration of appreciation) during fall and winter is entirely normal, and it does not indicate a decline in prices (depreciation).
To navigate through these potentially misleading headlines, it's essential to keep this seasonal pattern in mind. If you have concerns about home prices in your area, it's advisable to connect with a trusted real estate professional who can provide accurate and up-to-date information.