If youre thinking of buying or selling a home, one of the biggest questions you have right now is probably: whats happening with home prices? And its no surprise you dont have the clarity you need on that topic. Part of the issue is how headlines are talking about prices.
Theyre basing their negative news by comparing current stats to the last few years. But you cant compare this year to the unicorn years (when home prices reached record highs that were unsustainable). And as prices begin to normalize now, theyre talking about it like its a bad thing and making people fear whats next. But the worst home price declines are already behind us. What were starting to see now is the return to more normal home price appreciation.
To help make home price trends easier to understand, lets focus on whats typical for the market and omit the last few years since they were anomalies.
Lets start by talking about seasonality in real estate. In the housing market, there are predictable ebbs and flows that happen each year. Spring is the peak homebuying season when the market is most active. That activity is typically still strong in the summer but begins to wane as the cooler months approach. Home prices follow along with seasonality because prices appreciate most when something is in high demand.
Thats why, before the abnormal years we just experienced, there was a reliable long-term home price trend. The graph below uses data from Case-Shiller to show typical monthly home price movement from 1973 through 2021 (not adjusted, so you can see the seasonality):
As the data from the last 48 years shows, at the beginning of the year, home prices grow, but not as much as they do entering the spring and summer markets. Thats because the market is less active in January and February since fewer people move in the cooler months. As the market transitions into the peak homebuying season in the spring, activity ramps up, and home prices go up a lot more in response. Then, as fall and winter approach, activity eases again. Price growth slows, but still typically appreciates.
Why This Is So Important to Understand
In the coming months, as the housing market moves further into a more predictable seasonal rhythm, youre going to see even more headlines that either get whats happening with home prices wrong or, at the very least, are misleading. Those headlines might use a number of price terms, like:
- Appreciation: when prices increase.
- Deceleration of appreciation: when prices continue to appreciate, but at a slower or more moderate pace.
- Depreciation: when prices decrease.
Theyre going to mistake the slowing home price growth (deceleration of appreciation) thats typical of market seasonality in the fall and winter and think prices are falling (depreciation). Dont let those headlines confuse you or spark fear. Instead, remember its normal to see a deceleration of appreciation, slowing home price growth, as the months go by.
Bottom Line
If you have questions about whats happening with home prices in your area, connect with a trusted real estate professional.
