Separating Facts from Fear: Understanding Today's Home Prices

If you're currently in the market to buy or sell a home, you're probably wondering: What's the current state of home prices? Finding clarity on this topic can be challenging, especially with the way headlines are portraying the data.

How Media Portrays It

Media outlets often rely on negative comparisons of current stats with the last few years. However, it's essential to recognize that this year cannot be compared to the 'unicorn' years, a period of unsustainable record-high home prices. As the housing market now begins to stabilize, some are presenting it as a negative development, instilling fear in people's minds about what lies ahead. However, it's crucial to understand that the worst home price declines are behind us, and we are witnessing a return to more normal home price appreciation.

Seasonality In The Real Estate

To gain a clearer understanding of home price trends, let's focus on what's typical for the market and omit the last few years, which were anomalies.

Let's start by examining the concept of seasonality in real estate. Throughout the housing market, there are predictable ebbs and flows that occur each year. Spring typically marks the peak homebuying season, characterized by increased market activity. The momentum usually remains strong during the summer but begins to ease as the cooler months approach. Home prices follow this seasonality because prices tend to appreciate when demand is at its highest.

Before the period of abnormal price fluctuations, there existed a reliable long-term home price trend. The graph below, utilizing data from Case-Shiller spanning from 1973 to 2021 (not adjusted for seasonality), illustrates typical monthly home price movement:

As evident from the data of the last 48 years, home prices tend to grow at the beginning of the year, albeit not as significantly as during the spring and summer markets. The slowdown during January and February is a result of reduced market activity due to fewer people moving in colder months. As the market transitions into the peak homebuying season during spring, activity intensifies, resulting in more substantial price appreciation. Subsequently, as fall and winter approach, activity eases, leading to a deceleration of price growth, while still maintaining an overall appreciation trend.

Why Is Understanding This Crucial?

In the coming months, as the housing market settles into a more predictable seasonal rhythm, you may encounter more headlines that either misinterpret or misrepresent home prices. These headlines might use various price terms, including:

1. Appreciation: Referring to price increases.
2. Deceleration of Appreciation: Indicating continued price growth, but at a slower or more moderate pace.
3. Depreciation: Suggesting price decreases.

It's essential not to be swayed by such headlines! The slowdown in home price growth (deceleration of appreciation) during market seasonality in the fall and winter should not be misconstrued as actual price depreciation. Instead, it's a typical pattern of slowing home price growth as the months progress.

If you have questions about home prices in your area, it's best to connect with a trusted real estate professional. By understanding the seasonal trends and separating facts from fear, you can make informed decisions and navigate the real estate market with confidence.