If youre thinking of making a move, one of the biggest questions you have right now is probably: whats happening with home prices?Despite what you may be hearing in the news, nationally, home prices arent falling. Its just that price growth is beginning to normalize. Heres the context you need to really understand that trend.
In the housing market, there are predictable ebbs and flows that happen each year. Its called seasonality. 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 theres a reliable long-term home price trend. The graph below uses data fromCase-Shillerto show typical monthly home price movement from 1973 through 2022 (notadjusted, so you can see the seasonality):
As the data shows, at the beginning of the year, home prices grow, but not as much as they do in 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.
After several unusual unicorn years, todays higher mortgage rates helped usher in the first signs of the return of seasonality. As Selma Hepp, Chief Economist at CoreLogic, explains:
High mortgage rates have slowed additional price surges, with monthly increases returning to regular seasonal averages. In other words, home prices are still growing but are in line with historic seasonal expectations.
Why This Is So Important to Understand
In the coming months, youre going to see the media talk more about home prices. In their coverage, youll likely see industry terms like these:
- Appreciation: when prices increase.
- Deceleration of appreciation: when prices continue to appreciate, but at a slower or more moderate pace.
- Depreciation: when prices decrease.
Dont let the terminology confuse you or let any misleading headlines cause any unnecessary fear. The rapid pace of home price growth the market saw in recent years was unsustainable. It had to slow down at some point and thats what were starting to see deceleration of appreciation, not depreciation.
Remember, its normal to see home price growth slow down as the year goes on. And that definitely doesnt mean home prices are falling. Theyre just rising at a more moderate pace.
Bottom Line
While the headlines are generating fear and confusion on whats happening with home prices, the truth is simple. Home price appreciation is returning to normal seasonality. If you have questions about whats happening with prices in your local area, connect with a real estate professional.
