If you've been contemplating a move lately, one question likely dominates your thoughts: What's happening with home prices? It's not unusual to find yourself bombarded with conflicting news reports, but the truth is, nationally, home prices aren't plummeting. Instead, we're witnessing a transition to more normalized price growth. In this article, we'll break down the significance of this trend and why it's crucial to comprehend.
The Rhythm of the Real Estate Market
In the world of real estate, there exists a pattern of ebbs and flows, a rhythm we call seasonality. Spring emerges as the peak homebuying season, characterized by heightened market activity. The summer continues to see a strong presence of buyers, but as the cooler months draw near, the market begins to taper off. This cyclical pattern also influences home prices because prices tend to appreciate when demand is high.
This is why a long-term trend in home prices has emerged. The graph below, based on Case-Shiller data from 1973 through 2022 (without adjustment for inflation), illustrates the typical monthly movement of home prices:
As the data reveals, at the start of each year, home prices experience growth, although not as rapid as during the spring and summer months. This is primarily because the market is less active in the early months of January and February, as fewer people opt to move during the colder season. As spring begins the peak homebuying season, activity intensifies, causing home prices to rise more significantly. Then, as fall and winter approach, activity subsides, leading to a slowdown in price growth. However, it's important to note that prices typically continue to appreciate, even if at a more moderate pace.
The Role of Mortgage Rates
After several years of rather unusual market conditions, today's higher mortgage rates are steering us back towards the return of seasonality. 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."
The Importance of Grasping the Concept
In the coming months, you can expect the media to focus more on home prices. Throughout their coverage, you'll likely encounter industry terms like:
Appreciation: Referring to the increase in home prices.
Deceleration of Appreciation: Denoting a scenario where home prices continue to appreciate but at a slower, more sustainable rate.
Depreciation: Signifying a decline in home prices.
It's crucial not to let this terminology confuse you or be misled by sensational headlines. The fast pace of home price growth experienced in recent years was not sustainable. What we're witnessing now is a deceleration of appreciation, not depreciation.
The Bottom Line
While headlines may add fear and confusion about the state of home prices, the reality is straightforward. Home price appreciation is returning to a state of normal seasonality. The gradual slowdown in price growth throughout the year is not an indication of falling prices; it's a sign of a healthier and more sustainable market.
If you're curious about what's happening with home prices in your local area, don't hesitate to reach out. I’m here to connect and provide you with insights tailored to your specific neighborhood, helping you make informed decisions about your real estate journey.
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