Don’t Let the Latest Home Price Headlines Confuse You

Considering the information circulating in the news regarding home prices, you might be concerned about a potential decline. However, it's important to recognize that the headlines provide only a partial perspective.

Reviewing the national data for 2023 reveals that home prices actually experienced positive growth throughout the year. Although this trend varies across different markets, and there were occasional months with minor declines on a national scale, these instances were more of an exception than a regular occurrence.

The key takeaway is that home prices increased last year rather than decreased. Let's delve into the data to clarify this misconception.

2023 Was the Return to More Normal Home Price Growth

If anything, last year marked a return to more typical home price appreciation. To illustrate, let's examine the usual patterns in residential real estate.

In the housing market, there are predictable cycles that occur each year, known as seasonality. It typically unfolds as follows: Spring is the peak homebuying season when the market experiences the highest level of activity. This activity remains robust during the summer but begins to taper off towards the end of the year. Home prices align with this seasonality, as they tend to increase the most during periods of high demand.

The graph below utilizes data from Case-Shiller to depict how this pattern manifested in home prices from 1973 through 2022 (not adjusted, allowing for observation of seasonality):

As depicted by the data, over nearly five decades, home prices have conformed to typical market seasonality. At the onset of the year, home prices experience more moderate growth as the market is less active with fewer moves occurring in January and February. Subsequently, as the market transitions into the peak homebuying season during spring, both activity and home prices escalate. Conversely, as fall and winter approach, activity diminishes once again, and prices continue to increase, albeit at a slower pace.

Now, let's overlay the data for 2023 thus far (indicated in green) atop this long-term trend (illustrated in blue). This juxtaposition facilitates a clear comparison of 2023 against the historical trend.

As depicted in the graph, as we progress through 2023, the rate of appreciation aligns more closely with the long-term trend observed in the housing market. This alignment is evident in how closely the green bars approximate the blue bars during the latter part of the year.

However, media headlines primarily focused on the two bars highlighted in red. Here's some context you might have missed, which can provide a better perspective on these two bars. The long-term trend indicates that it's customary for home prices to moderate during the fall and winter, reflecting typical seasonality.

Moreover, considering that the 49-year average during those months is close to zero (0.10%), it's not uncommon for home prices to experience slight declines during these periods. Nevertheless, these fluctuations are merely temporary blips on the radar. When examining the year as a whole, home prices still registered an overall increase.

What You Really Need To Know

Headlines tend to emphasize minor month-to-month declines rather than focusing on the broader year-long perspective, which can be somewhat misleading as it only captures one aspect of the entire narrative.

Instead, it's important to recall that last year witnessed the resurgence of seasonality in the housing market – a positive development following the unsustainable surge in home prices during the 'unicorn' years of the pandemic.

Furthermore, if you're concerned about potential declines in home prices, rest assured. The outlook for this year indicates that prices will likely continue to appreciate. This is attributed to buyers re-entering the market due to mortgage rates trending lower compared to last year. With increasing buyer demand and a persistently low supply of homes for sale, the upward pressure on prices is expected to persist.

Bottom Line

Don't allow headlines about home prices to cause confusion. The data indicates that, overall, home prices increased in 2023. If you have any questions regarding what you're hearing in the news or about the current state of home prices in our local area, feel free to reach out, and let’s connect.