Decoding Home Prices: Cutting Through the Headline Hype

With the news suggesting a decline in home prices, you might be concerned. However, it's crucial to note that the headlines provide an incomplete perspective. Examining the national data for 2023 reveals positive overall growth in home prices. Although variations exist across markets, instances of slight declines at the national level during certain months were the exception rather than the rule.

The overarching story is that prices went up last year, not down. Let’s dive into the data to set the record straight. 

2023 Was the Return to More Normal Home Price Growth

If anything, the past year signaled a return to a more typical pattern of home price appreciation. To illustrate, let's explore the customary trends in residential real estate.

In the housing market, a predictable cycle known as seasonality unfolds each year. During spring, the peak homebuying season, the market experiences heightened activity. While the summer remains fairly active, there's a gradual decline in market vigor towards the year's end. This seasonal rhythm also influences home prices, with the highest growth occurring during periods of elevated demand.

The graph below utilizes data from Case-Shiller, spanning from 1973 through 2022 (not adjusted for clarity on seasonality), to visually represent how this pattern has historically played out in home prices:

 

As evidenced by the data, home prices have adhered to typical market seasonality for nearly five decades. At the start of the year, home prices exhibit more modest growth due to reduced market activity in January and February when fewer people are relocating. Subsequently, during the peak homebuying season in spring, both market activity and home prices escalate. As fall and winter approach, activity tapers off, and prices continue to rise, albeit at a slower pace.

Now, let's overlay the 2023 data (depicted in green) onto this long-term trend (represented in blue). This comparison makes it straightforward to gauge how 2023 aligns with historical patterns.

As depicted in the graph, as we progressed through 2023, the appreciation level more closely aligned with the long-term trend typical in the housing market. This alignment is evident in how closely the green bars mirror the blue bars, particularly in the latter part of the year.

However, the headlines predominantly emphasized the two bars highlighted in red. To provide context that might have been overlooked, it's essential to understand that the long-term trend indicates a normal moderation of home prices during the fall and winter, reflecting typical seasonality.

Given that the 49-year average is close to 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 experienced an overall increase.

What You Really Need To Know

Headlines tend to highlight minor month-to-month declines rather than focusing on the broader year-long perspective, which can be somewhat misleading as it concentrates on just one part of the entire narrative.

Instead, it's crucial to recall that last year marked 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.

If concerns linger about potential declines in home prices, rest assured. The outlook for this year suggests continued appreciation, driven by a resurgence of buyers in response to declining mortgage rates compared to the previous year. With increased buyer demand and a persistently low supply of homes for sale, the upward pressure on prices is expected to persist.

Bottom Line

Avoid getting confused by home price headlines. The data indicates that, overall, home prices increased in 2023. If you have queries regarding the information in the news or the dynamics of home prices in your local area, reach out to a reliable real estate professional for clarification.

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