Are Home Prices Going Up or Down? That Depends…

Are Home Prices Going Up or Down? That Depends…

Media coverage on home prices can be perplexing, largely attributed to the nature of data being employed and the specific aspects they choose to highlight. When it comes to comparing home prices over different time periods, there are two primary methods used: year-over-year (Y-O-Y) and month-over-month (M-O-M). Let me break down each of these approaches for you.

Year-over-Year (Y-O-Y):

• Year-over-year (Y-O-Y) comparison involves assessing the variation in home prices by comparing the prices of a specific month or quarter in the current year with the corresponding month or quarter in the previous year. To illustrate, if we consider April 2023, the Y-O-Y home price comparison would entail evaluating the prices for April 2023 in relation to the prices recorded in April 2022.
• Year-over-year (Y-O-Y) comparisons concentrate on measuring changes in home prices over a span of one year, thereby offering a more holistic perspective on long-term trends. These comparisons are particularly valuable in assessing annual growth rates and determining whether the housing market is experiencing overall appreciation or depreciation. By examining Y-O-Y changes, analysts and observers can gain insights into the broader trajectory of the market over a longer duration.

Month-over-Month (M-O-M):

• Month-over-month (M-O-M) comparison involves evaluating the fluctuations in home prices from one month to the next. To illustrate, when examining M-O-M home prices for April 2023, the comparison would be made against the home prices recorded in March 2023. This method enables analysts to gauge short-term changes in the housing market and identify patterns or trends that may emerge within a specific monthly timeframe.
• Month-over-month (M-O-M) comparisons focus on examining changes in home prices within a single month, providing a more immediate and concise snapshot of short-term movements and price fluctuations. This method is commonly employed to track immediate shifts in demand and supply, identify seasonal trends, or assess the impact of specific events on the housing market within a relatively short timeframe. By utilizing M-O-M comparisons, analysts can gain insights into the more immediate dynamics and changes occurring within the housing market.

Y-O-Y and M-O-M comparisons differ primarily in the time frame they evaluate, each offering distinct advantages and serving specific analytical purposes. These approaches have their own merits and are employed depending on the specific analysis required.

Why Is This Distinction So Important Right Now? 

We are approaching a period during which home prices could potentially be lower than they were in the corresponding months of the previous year. Specifically, April, May, and June of 2022 witnessed exceptionally high home prices, marking a significant milestone in the American housing market's history. However, it is likely that the same months this year may not exhibit comparable price levels. Consequently, when utilizing the year-over-year (Y-O-Y) comparison, it is probable that we will observe a depreciation in home values. The data for April indicates that this trend may continue in the upcoming months. Please refer to the graph below for a visual representation of this information.

The potential decline in home values on a year-over-year (Y-O-Y) basis might generate concerning headlines that suggest a downward trajectory. While such headlines would accurately reflect the Y-O-Y comparison, a closer examination of month-over-month (M-O-M) home prices reveals a different picture. In fact, M-O-M data indicates that home prices have been appreciating over the past few months. These M-O-M numbers offer a more accurate representation of the current state of home values, indicating a rebound after a period of depreciation. To illustrate this, please refer to the graph below, which showcases the M-O-M movements of home prices over the past 16 months as reported by the CoreLogic Home Price Insights report.

Why Does This Matter to You?

So, if you’re hearing negative headlines about home prices, remember they may not be painting the full picture. For the next few months, we’ll be comparing prices to last year’s record peak, and that may make the Y-O-Y comparison feel more negative. But, if we look at the more immediate, M-O-M trends, we can see home prices are actually on the way back up.

There’s an advantage to buying a home now. You’ll buy at a discount from last year’s price and before prices start to pick up even more momentum. It’s called “buying at the bottom,” and that’s a good thing.

Bottom Line

If you have any inquiries regarding the current state of home prices or if you are considering purchasing a home before prices potentially increase further, I'm here to assist you. Feel free to reach out, and let's connect to address your questions or discuss your home buying plans.