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Let’s Not Get Carried Away with Home Price Increases

There has been a lot of excitement about home prices over the last few months. Though we agree that the housing industry is in a full out recovery, we also believe that there will still be price volatility over the next several months. We must realize home sales are seasonal and that fact impacts prices.

Lawrence Yun, Chief Economist for National Association of Realtors, explains that the inventory of lower priced homes has been constrained leading to the rise in median home prices:

“Fewer sales in the lower price ranges are contributing to stronger increases in the median price, but all of the home price measures now are showing positive movement and that is building confidence in the market.”

Celia Chen, housing analyst at Moody’s Analytics projects that this positive price movement may not be sustained over the next few months as more distressed properties enter the market:

“Housing is about to turn from being a drag on the broader economy to being a driver…House prices will remain the laggard, perhaps dipping a little before hitting a sustained and solid pace of appreciation next year…The distress pipeline casts a shadow over the outlook. Indeed, the CoreLogic price index gained strongly between late 2009 and the second quarter of 2010, when foreclosure moratoriums were in place, before losing nearly all of the gains once the distress share of sales picked up again.”

The RPX Report suggests that price declines in the next few months could erase any gains we have seen this year:

“The gains of the first half of 2012 could be short lived. They were the result of seasonal factors and REO disposition strategies that could reverse in the fall. The unusually rapid price appreciation could give way to equally rapid declines in the second half of the year.”

Calculated Risk probably did the best job of explaining the situation reporting:

“Home price indexes will show month-to-month declines later this year. This should come as no surprise and will not be a sign of impending doom… There is a clear seasonal pattern. In recent years the seasonal pattern has been exaggerated by the large number of foreclosures – foreclosures tend to be fairly steady all year, but conventional sales are stronger in the spring and early summer and weaker in the fall and winter. This leads to more downward pressure from foreclosures in the fall and winter.”

Again, Calculated Risk explains that this “will not be a sign of impending doom”. It is instead the normal seasonality we have seen in home prices over the last several years.

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3 replies
  1. AgentCampus California
    AgentCampus California says:

    Don’t get carried away – but know how to go with the trend – changes on people’s preferences in terms of owning or renting a house, getting a mortgage or not, etc.

  2. Linda Davis
    Linda Davis says:

    The average and median price of our currently pending sales is significantly lower that our 2012 average or median closed price. As a result, I expect to see exactly what you describe.

  3. Darren Ahearn
    Darren Ahearn says:

    With over 1.4 Million in Shadow Inventory how can we see them go up–?? Maybe under 150K range in our area we will see it flat or go up some (1%) but our high end stuff is taking a blood bath– (-6%) a year still is the trend.. So where is the FLOOR ???


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