Home Price Appreciation to Return to Normal Seasonal Patterns

If you're contemplating a relocation, one of your primary concerns is likely, 'What's the current status of home prices?' Contrary to some media reports, home prices are not experiencing a nationwide decline. Instead, they are gradually returning to a more stable pattern of price growth. Let's delve into the details to gain a deeper understanding of this evolving trend.

In the real estate market, there are recurring patterns known as seasonality. Spring marks the zenith of homebuying activity when the market is at its busiest. The robust activity usually carries over into the summer but gradually diminishes as the cooler months draw near. Home prices, in line with seasonality, tend to appreciate the most when demand is at its peak.

This is why there exists a consistent long-term trend in home prices. The chart below utilizes data from Case-Shiller to illustrate the usual monthly fluctuations in home prices from 1973 to 2022 (without adjustments, allowing you to observe the seasonal variations).

As the data illustrates, home prices experience growth at the start of the year, although not as significantly as during the spring and summer seasons. This phenomenon occurs because the real estate market tends to be less active in January and February due to reduced mobility during colder months. As the market shifts into its peak homebuying season in the spring, activity intensifies, resulting in a more substantial increase in home prices. Then, with the approach of fall and winter, activity subsides once more, leading to a deceleration in price growth, albeit still maintaining a typical level of appreciation.

After a series of extraordinary ‘unicorn’ years, the current elevated mortgage rates have played a role in reintroducing the initial indications of seasonality's resurgence. Selma Hepp, Chief Economist at CoreLogic, offers her insights, stating:

"The elevated mortgage rates have decelerated further price spikes, leading to a return of monthly increases aligning with the customary seasonal averages. In essence, home prices continue to appreciate, but they are now in accordance with historical seasonal norms."

Why This Is So Important to Understand

In the upcoming months, you can anticipate increased media discussions concerning home prices. These discussions will likely feature industry terminology such as:

• Appreciation: refers to the rise in prices.
• Deceleration of appreciation: When the rate of increase in prices slows down.
• Depreciation: When the value of something decreases.

Don't be confused by the terminology or misled by headlines. The rapid pace of home price growth we've seen in recent years was unsustainable. It was bound to slow down at some point, and that's what's happening now. Home prices are still rising, but at a slower rate.

Home price growth typically slows down as the year goes on. This doesn't mean that home prices are falling. It just means that they're rising at a more gradual rate.

Bottom Line

While headlines may be causing concern and confusion about the state of home prices, the truth is straightforward. Home price appreciation is returning to its typical seasonal patterns. If you have questions about price trends in your local area, it's a good idea to consult a real estate professional.