Here’s Why Seasonality Matters In The Housing Market

It is a fact that the housing market is continually fluctuating in months and even in years. However, knowing the reason why this happens can be complicated. Whether you want to know what is the best month to sell a house or the worst month to sell a house, it is important that you know what causes this difference. Surprisingly, the seasons play an important role in the housing market.

Does the housing market also get cold when the weather gets cold? Well, it all depends on where you live. Regardless if you are selling or purchasing a home, the supply and demand of properties do matter. One of the factors that can affect the supply and demand for housing is the seasonality of your market. Perhaps, you might think that seasonality has no influence on the price of the house that you are selling or purchasing, however, it has a big difference. In most cases, its effect on the price can even reach up to  10%. Do you want to enjoy a seasonal discount?

When it comes to the housing market, one of the key factors to consider is seasonality. During the spring and summer months, most people are either buying or selling their homes. And when fall and winter comes, it gets quieter. The idea of seasonality is not well recognized or understood at the moment.

Here, we will take a look at the non-season adjusted figures for current home sales and mortgage applications to give you more idea about seasonality in the housing industry. Generally, the increase in house buying and selling activities in the early part of the year already provides us with significant indications for the rest of the year.

These early indications from mortgage applications and current home sales are quite inspiring.

How Many Homes Are Actually Sold?

Every month, the National Association of Realtors will make a report on the total number of existing-home sales during the previous month. The total existing-home sales include all the transactions that were completed for the given month. The homes that were sold are either condominiums, townhomes, single-family homes, or co-ops. In January, the total existing-home sales are 5.47 million, but in February it dropped by 7.1%, with a sales of 5.08 million which is also the seasonally adjusted annual rate.

Take note that the total number of existing homes that were sold, which is 314,000, is not the same as the seasonally adjusted number since an adjustment was made due to the effect of seasonality. In this manner, it will be easier to make a comparison of home sales between different months without seasonality. But unfortunately, it will be hard to verify seasonality which is significant for people who are interested in selling or buying a home as well as for those who are in the housing industry professionals.

Housing Seasonality

The number of homes being sold generally increases as spring comes. Since 1990, it was observed that between the months of February and March, there was a significant increase of 33% on the average for the non-seasonally adjusted existing home sales.

There was a continuous increase in the existing home sales all through the second quarter of the given year. In fact, an average monthly growth rate of 10% was seen until June. However, huge home sales can be seen on the months of May, June, July and August. The total home sales for these four months comprises 40% of the year’s average home sales.

For both home buyers and sellers, it is significant that they are aware of the peak selling months where more houses are being sold. It will be advantageous on the part of the home buyers since there are greater chances that they will be able to find the right property. While on the part of the home sellers, it is more likely that they can find a buyer right away.

This annual result is also relevant for those who are in the housing industry since it can help them evaluate their performance during these peak season for home sales. The decline in home sales started in September. On August, there was an average decline of 16% on existing home sales. And in November, another decline of 10% was experienced. From November to February, existing-home sales experienced a significant decline. This comprises 27% of the average total home sales for a given year.

Regional Differences

These non-seasonally adjusted house sales figures are also relevant for regional comparison since house buying and selling activities also differ by region throughout the year. The heaviest peak home-selling seasons can be found both in the Northeast and the Midwest. This means that during these peak months, more homes were sold.

The home-selling season in the Northeast experienced a slow increase in the spring, however, this growth only lasts up to three months rather than four months, just like in other regions. This means that the home sales that they obtained from June to August comprise a larger percentage of the annual house sales.

On the other hand, in the Midwest, it’s peak home-selling season occurs in May, which is one month advance from the rest of the country. From October to February, they experienced the slowest house sales. During these months, they have fewer sales compared to the other regions.

For home buyers and sellers, these variations should be considered since it can help them decide when they should buy or sell their home. This data on home-selling is also relevant for those who have businesses in the housing industry and are operating in various regions since it can help them make a month-to-month comparison.

The Growth In March Weakened Post-Housing Crisis

The increase in the existing home sales during the spring is vital for the entire home-selling season since it can help us figure out the volume for the home-selling season. Hence, it is not surprising that the growth in March is lower during the housing downturn.

The house sales also show that for the past nine years starting in 1999, an increase of less than 30% in March sales have occurred six times. However, for the first eight years, there were only two significant increases.

As the housing industry slowly recovers, home sales have also started to pick up. It is anticipated that we can see significant growth in March. The data for existing home sales for the month of March will be available on April 27. Nevertheless, it proves to be promising due to the early indications from mortgage applications for home purchases.

For homebuyers who are interested in purchasing a house, the first thing they should do is apply for a mortgage. If they won’t do this, then they will not be able to close their purchase. Mortgage applications for home purchases are just like home sales since they also follow a seasonal pattern.

During the early part of the year, we have seen a typical growth on mortgage applications compared to home sales. This occurs in the months of January and February. The peak for mortgage applications happens in April and May, which is much earlier compared to home sales.

Hence, we can say that these mortgage applications can be used as the foremost indicator for existing home sales. February is the month with the highest increase for mortgage applications, with an average increase of more than 20% month after month.

This data can provide us with some ideas on the March and April existing home sales volume. In February 2016, there was a significant increase of almost 31% on mortgage applications compared to  January.

So far, this is the largest February increase the occur in the last 18 years. Most probably, this is an indication that existing home sales will likely experience significant growth from February.

Understand Your Local Real Estate Market

It is important that you should consider seasonality in the housing market since it can either hurt you or benefit you, depending on the decisions that you’ll be making at what period. If you want to be on the winning side, then you must understand your local real estate market so you can keep up with this seasonal trend. Keep in mind that the best months for selling a house and the worst months for selling a house will greatly vary depending on the area where your house is located. The best thing that you can do is to do some research and study the information on the real estate market in your area. By learning these unique features in your area, you can provide better service to your clients.

Basically, you need to understand that seasonality varies from one location to another and every real estate market has its own difference.

What Are The Factors That Affect Seasonality in the Housing Market

Perhaps one of the most intense transitions that influence the seasonality of the housing market is the weather. Although it may sound obvious, yet seasonality does not apply to weather patterns only. Actually, there are various factors that can influence the supply and demand of any housing market.

One of these factors is the school year. Some home buyers and home sellers have families with children. Generally, parents will not move their family to another place during the middle of the school year. Ultimately, they will wait until the school year is over. In this way, they will have more free time. At the same time, their children can begin their new school year at a proper time. This seasonal condition can likely influence when families should buy or sell their house.

When searching for a house, most home buyers with kids would consider school boundaries. They consider this an important factor when buying a home.

Another factor to consider is the holidays. There are only a few people who will consider buying or selling their homes during the holiday season. Perhaps this is due to holiday errands, family obligations, or harsh weather conditions. This is probably the reason why the supply and demand of the housing market slow down between November and January. Although this is a simple reason for real estate seasonality it sure is understandable!

Do Prices and Transactions Increase in the Summer?

Based on the London School of Economics academic paper, there is a tendency that the UK property market goes up when the weather starts to warm up, not only the costs but also the number of transactions. Furthermore, the data shows that the second and third quarters of the year are not only the time that the weather gets warm but also the time then the prices also heat up.

For most home buyers and home sellers, the perfect times are usually spring and summer. It is more pleasant to travel from one place to another when the weather is fine. If you are a landlord looking for a property, then this can also give you more time to prepare the house in case it requires necessary repairs. Most especially before the weather gets cooler.

While spring tends to be the best time to buy a home, yet it is not the best time when it comes to the prices. During this time, house sellers have the upper hand. Since there are a lot of people who are looking for properties, then this means that you have to act fast. Although, this is also advantageous for landlords who are looking to sell their properties.

Will The House Prices Go Down During Autumn and Early Winter?

Based on the same study, house prices and transactions will likely decline from October to March. During these months the weather is cold so there is a quick turn of events. However, towards the end of March, the demand for properties starts to move upwards so as the prices.

During this period, there are only fewer opportunities. Generally, buyers can use this to their advantage. Also, this is the time when house sellers are more eager to sell their properties. If you want to buy a house during this time, then you should use your bargaining power. Additionally, it will be much easier for you to find a property that is below the asking price. During the mid-September, there is a slight boost in sales. This is because children will be going back to school and families are planning to move.

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