Don’t Fall for the Next Shocking Headlines About Home Prices

If you're considering buying or selling a home, you're likely wondering about the current status of home prices. It's understandable that you may not have a clear understanding of the situation due to the way media headlines are discussing the topic.

It seems like some people are sharing negative news by comparing current statistics to the past few years. However, it's important to note that we can't compare this year to the previous 'unicorn' years when home prices were at a record high that couldn't be sustained. Although home prices are beginning to stabilize now, some individuals are portraying it in a negative light and causing people to worry about the future. Fortunately, the worst home price declines have already passed, and we can now expect to see a return to more normal home price appreciation.

To simplify understanding of home price trends, let's ignore the anomalies of the past few years and focus on what is typical in the market.

First, let's discuss the seasonality of real estate. In the housing market, there are predictable patterns that occur each year. Spring is the busiest season for homebuying and the market is most active during this time. Summer also sees a good amount of activity but it starts to slow down as the cooler months approach. Home prices also vary according to seasonality because prices tend to increase when demand is high..

Prior to the recent abnormal years, there was a dependable long-term trend in home prices. The following graph utilizes information from Case-Shiller to display the typical monthly movement of home prices from 1973 to 2021 (not adjusted, in order to show seasonality).

Based on data from the past 48 years, it has been observed that home prices tend to increase more rapidly during the spring and summer months compared to the beginning of the year. This is because the real estate market is less active during January and February due to fewer people moving in the colder months. However, as the market enters the peak homebuying season in the spring, activity increases and home prices rise significantly. As fall and winter approach, activity slows down again, causing the growth in prices to decrease, but still generally appreciates.

Why This Is So Important to Understand

In the next few months, as the housing market becomes more predictable and follows its seasonal pattern, there will likely be more headlines about home prices. Some of these headlines may be inaccurate or misleading, using various terms to describe prices such as:

Appreciation: when prices increase.
Deceleration of appreciation: when prices continue to appreciate, but at a slower or more moderate pace.
Depreciation: when prices decrease.

During the fall and winter, the slowing of home price growth is a common trend due to market seasonality. However, some may mistake this deceleration of appreciation for a decline in prices. It's important not to be misled by these headlines and to remain calm. Remember that a slowing home price growth is a normal occurrence as time passes.