Don’t Let the Latest Home Price Headlines Confuse You

Concerns may arise based on news reports suggesting a decline in home prices. However, it’s essential to note that these headlines do not provide a complete perspective.

Analyzing the national data for 2023 reveals that, on the whole, home prices experienced positive growth throughout the year. Although there may be variations across different markets, and occasional months with minor national declines, such instances were exceptions rather than the norm.

Contrary to the perception created by some headlines, the overall narrative indicates an increase in prices last year rather than a decrease. Let’s delve into the data to accurately clarify the situation.

2023 Was the Return to More Normal Home Price Growth

If anything, the past year signaled a reversion to more typical patterns of home price appreciation. To illustrate, let’s explore the customary occurrences in residential real estate.

The housing market exhibits predictable ebbs and flows annually, a phenomenon known as seasonality. The peak homebuying season occurs in spring when the market is most vibrant. This high level of activity typically extends into summer but starts to taper off towards the end of the year. Home prices align with this seasonality, as they experience the most significant growth during periods of high demand.

The graph below uses data from Case-Shiller to show how this pattern played out in home prices from 1973 through 2022 (not adjusted, so you can see the seasonality):

According to the data, for nearly five decades, home prices have conformed to the usual market seasonality. At the start of the year, home prices exhibit more modest growth, given the lower activity levels with fewer individuals relocating in January and February. Subsequently, as the market shifts into the peak homebuying season during spring, both activity and home prices experience an increase. As fall and winter draw near, the market activity diminishes, leading to a slower rate of price growth.

Now, let’s layer the data that’s come out for 2023 so far (shown in green) on top of that long-term trend (still shown in blue). That way, it’s easy to see how 2023 compares.

As depicted in the graph, as we progress through 2023, the appreciation level aligns more closely with the long-term trend typical in the housing market. This is evident in how closely the green bars correspond to the blue bars in the latter part of the year.

However, the headlines predominantly focused on the two bars outlined in red. To provide a more comprehensive perspective, it’s essential to consider the context. The long-term trend indicates that it’s customary for home prices to moderate in the fall and winter, reflecting typical seasonality.

Given that the 49-year average is near zero during those months (0.10%), it’s not uncommon for home prices to experience a slight decline during this period. Nevertheless, these are minor fluctuations. When considering the entire year, home prices still demonstrated an overall increase.

What You Really Need To Know

Headlines tend to highlight minor month-to-month declines, which, when isolated, can be somewhat misleading as they only capture a fragment of the broader narrative.

Instead, it’s crucial to recall that last year witnessed the reemergence of seasonality in the housing market—an encouraging development following the unsustainable surge in home prices during the ‘unicorn’ years of the pandemic.

For those concerned about potential declines in home prices, reassurance is warranted. Projections for this year indicate a sustained appreciation as buyers re-enter the market, fueled by declining mortgage rates compared to the previous year. With increasing buyer demand and a persistently low supply of homes for sale, the upward pressure on prices is anticipated to persist.

Bottom Line

Don’t let home price headlines confuse you. The data shows that, as a whole, home prices rose in 2023. If you have questions about what you’re hearing in the news or about what’s happening with home prices in our local area, let’s connect.