Curious about the current state of home prices? Contrary to what you may have heard, home prices are not plummeting nationwide. Rather, they are experiencing a return to normalcy in terms of growth. To truly grasp this trend, it’s important to understand the concept of seasonality in the housing market. And here is what you need to know about it.

Seasonality refers to the predictable fluctuations that occur in the housing market throughout the year. Spring is traditionally the peak season for homebuying, characterized by high market activity. This momentum typically carries over into the summer months but gradually diminishes as the cooler seasons approach. Home prices align with this seasonality pattern, as they appreciate the most when demand is at its peak.

This consistent long-term trend in home prices can be observed in the graph below, which showcases monthly price movements from 1973 to 2022 (without adjustments for seasonality):

As depicted in the data, home prices experience growth at the beginning of the year, albeit not as significant as during the spring and summer markets. This is because the housing market is less active in January and February, with fewer people opting to move during the colder months. As the market transitions into the peak homebuying season in spring, activity intensifies, resulting in a substantial increase in home prices. However, as fall and winter approach, activity subsides once again. Price growth slows down but still maintains a consistent appreciation.

After a series of atypical years, the return of seasonality is becoming evident, partly due to higher mortgage rates. These rates have contributed to a slowdown in price surges, bringing monthly increases back in line with historical seasonal averages. In the words of Selma Hepp, Chief Economist at CoreLogic,

“Home prices are still growing but are in line with historic seasonal expectations.”

Understanding the significance of this return to normalcy is crucial. In the upcoming months, media coverage on home prices will likely increase, accompanied by industry terms such as appreciation, deceleration of appreciation, and depreciation. It’s important not to be confused by these terms or let misleading headlines instill unnecessary fear. The rapid pace of home price growth witnessed in recent years was unsustainable and had to eventually slow down. What we are currently experiencing is a deceleration of appreciation, not depreciation.

Remember, it is normal for home price growth to taper off as the year progresses. This does not indicate a decline in home prices; rather, they are rising at a more moderate pace.

The Bottom Line

In conclusion, while headlines may be causing fear and confusion regarding home prices, the truth is straightforward. Home price appreciation is returning to its normal seasonal pattern. If you have any concerns or questions about prices in your local area, it is advisable to consult with a real estate professional.

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