If you’re thinking of making a move, one of the biggest questions you have right now is probably: what’s happening with home prices? Despite what you may be hearing in the news, nationally, home prices aren’t falling. It’s just that price growth is beginning to normalize. Here’s the context you need to really understand that trend.
In the housing market, there are predictable ebbs and flows that happen each year. It’s called seasonality. Arizona is interesting in that the high season takes place during the spring and more recently carries over into May and June. However, once the temperatures start to climb in the summer, home sales taper off, and many owners who do not have to sell take their homes off of the market. We typically see things start to pick up a little around November, but generally, January and February are when things really start to heat up.
Home prices follow along with seasonality because prices appreciate most when something is in high demand. That’s why there’s a reliable long-term home price trend. The graph below uses data from Case-Shiller to show typical monthly home price movement from 1973 through 2022 (not adjusted, so you can see the seasonality):
As this national data shows, at the beginning of the year, home prices grow, but not as much as they do in the spring and summer markets. That’s because the market is less active in January and February since fewer people move in the cooler months. (This is quite the opposite in Arizona as people from the colder climates want to escape to our nice weather!)
This national data shows how the market transitions into the peak homebuying season in the spring, activity ramps up, and home prices go up a lot more in response. Then, as fall and winter approach, activity eases again. (Again, in Arizona, this seasonality is timed differently, but the pricing correlation is the same with respect to high-season and low-season demand.) Price growth slows, but still typically appreciates.
After several unusual ‘unicorn’ years, today’s higher mortgage rates helped usher in the first signs of the return of seasonality. As 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.”
Why This Is So Important to Understand
In the coming months, you’re going to see the media talk more about home prices. In their coverage, you’ll likely see industry terms like these:
- Appreciation: when prices increase.
- Deceleration of appreciation: when prices continue to appreciate, but at a slower or more moderate pace.
- Depreciation: when prices decrease.
Don’t let the terminology confuse you or let any misleading headlines cause any unnecessary fear. The rapid pace of home price growth the market saw in recent years was unsustainable. It had to slow down at some point and that’s what we’re starting to see – deceleration of appreciation, not depreciation.
Remember, it’s normal to see home price growth slow down as the year goes on. And that definitely doesn’t mean home prices are falling. They’re just rising at a more moderate pace.
Bottom Line
While the headlines are generating fear and confusion about what’s happening with home prices, the truth is simple. Home price appreciation is returning to normal seasonality. If you have questions about what’s happening with prices in our local area, let’s connect.
