What Time of Year Do Prices Increase?
When people hear that house prices are going up 12% a year, most assume that they are going up about 1% a month over the entire year. As we’ve told our clients for years, however, that’s not how it works. In market where prices are surging, nearly all the price increase for a given year occurs between the months of January and June. So, when we have a 10% price increase, a house that sold for $500,000 house in January will tend to sell for $550,000 by the end of June. For clients who are starting their house hunt in December or January, we recommend they get focused and try to find a good house quickly, since that may save them between 5% to 10% on their purchase price.
But we’ve recently added a footnote to this: From 2013 through 2017, median house prices for sales closed between January and June are higher than median prices for comparable houses closed over the year as a whole. That is, the prices of homes closing from July to December actually drop relative to those closing between January and June, bringing down the median prices for the year when compared to January to June prices.
If we look at the average price increases for mid-sized homes from 2013 through 2017, for example, full year data shows an average price increase of 8.7% year on year. But if we drop the sales data from the second half of each year, comparing median prices only for the January/June period to the median prices for the prior year, that 8.7% increase turns into an average 9.4% increase. This happens with small houses and with condos/townhomes as well. For small houses, full year median prices average a 9.4% increase from 2013 through 2017, while January to June prices show an 11.3% increase over the prior year. For condos and townhomes, full year data show a 10.2% increase year on year, where the January to June increase comes in at 12.5%. Fall prices actually drop 2-4% over spring prices to produce these lower prices for the year as a whole, even though they are still substantially higher than prices for the prior year.
While surprising, these data make sense to anyone who’s been trying to buy a home in our area since 2013. In the spring, buyers in the lower half of our market are typically competing against 5-15 other offers any time they attempt to buy a listed home. In the fall, we typically have either no competition when we submit offers, or we’re competing against 1 or 2 other buyers. This removes the pressure to submit offers that are 10K-25K over list price, and in some cases, even allows buyers successfully submit offers that are below the asking price. This also means that listing agents and sellers get less aggressive with their initial asking price. The outcome is a drop in market prices relative to spring pricing.