After the Pandemic of 2009, some statistics indicate that seasonal fluctuations in housing are returning.
The term “homebuying seasons” is well-known, even though many people are unsure of when it occurs. It refers, in general, to the months of high prices, higher sales volumes, and a greater number of homes for sale. The “season” in housing is just one part of the flow that occurs throughout the year.
Prices, listings and sales of homes usually follow an almost predictable pattern. They rise and fall during specific months. Since the COVID-19 epidemic and the resulting economic turmoil began in 2020, these patterns have been disrupted. We’ve been waiting to see them return. Some data indicate that we are getting closer to this normal.
First, let’s note what is still different.
While home prices have risen rapidly in recent months, it is unlikely that they will return to their pre-pandemic levels. Prices may actually drop in certain markets. Buyers should not expect to see ultra-low rates of mortgage returned. As long as there are no slight changes, the higher mortgage rates will remain. The demand for home loans has also begun to stabilize. This means that, even if the movement of the data resumes more predictable patterns in the future, the actual numbers will not resemble those they used to be.
Winter valley, but prices still at summer highs
Prices are usually lowest in the beginning of the year. They then rise into summer, before gently falling at the end of autumn. Most of the time, prices end up higher at year’s end than when they began but below their peak.
According to my analysis, Realtor.com’s data shows that home prices reached their peak in either June or July eight out of the last ten years. Two years defied this trend, and they were 2020 and 2021.
Both years saw a peak in the sales price of a home during December as it continued its upward trend. As demand dropped due to rising interest rates in 2022, home sales prices fell steadily from their June peak. They returned to the January levels by the year’s end.
The implications for buyers in 2023: While price growth is not expected to be as robust this year as in 2020 or 2021, it’s also unlikely that it will drop as much in the second half of 2023 as in 2022. The new norm for buyers is higher interest rates. Unlike last year, when the rates shocked them, 2023 will see them continue their search. Prices may peak during the summer, before falling slightly in the autumn. This is similar to a traditional seasonal pattern.
High rates hinder inventory recovery
In an average year, active listings begin at a lower level, then increase in spring, peak in fall, and finally decline in December. On average, inventory peaks after prices.
According to the script, the inventory in 2020 started out low but continued to decline through the rest of the year, as the pandemic spread. In 2021, the number of listings followed a seasonal pattern but was a small fraction of its usual level. Inventory began to rise in spring and peaked during the fall. It then began decreasing late in the season, with roughly half the number of listings that existed before the pandemic. Inventory recovered last year. The number of listings increased by more than twofold from February to the end of October.
The impact on 2023 buyers is that this year’s market will likely be more like a regular season with listings increasing into the autumn. However, high mortgage rates are expected to continue keeping inventory low. Owners with mortgages are likely to have lower rates because they purchased or refinanced during the period of sub-4% that has just concluded. Many of the would-be-sellers are not willing to surrender their low-interest rate mortgage in order to pay a higher interest rate this fall.
This means that 2023 will be a year of limited choices for buyers. There are still not enough homes to choose from. The number of houses available has increased since 2021 but it is still too few. You can expect difficulties if you have a list of requirements when looking for a house. Be flexible instead. You can narrow down the list of listings by deciding what compromises you are willing to make.
The sales trends seem to be normalizing in 2022
In spring 2020, home sales dropped as a result of the shutdown in the first months following the pandemic. Then, sales took off. They didn’t decrease to normal levels as the months cooled. In 2021 and later that same year, sales of existing houses remained strong through the last quarter of the year. This is a period when normal declines in home sales occur. According to my analysis of National Association of Realtors’ data, in 2022 rising mortgage rates helped dampen demand, resulting in a decline of the number of houses sold during the third quarter and the fourth.
The impact on 2023 home sellers: Although the demand for housing has decreased compared to the two first years, the market has been relatively stable despite the higher interest rates. The combination of a sustained demand and a small supply will likely lead to continued competition, which in turn increases the chances that you can sell your house. You will likely pay more in interest for the mortgage this time, but the equity in your home allows you to make a bigger down payment. Reduce your loan costs by choosing a shorter term mortgage, such as 15 or 20 years instead of the 30-year-old fixed. The lower interest rates today can be offset by the shorter mortgage term.