As The Season Changes Opportunity Arises For FirstTime Buyers

Dated: September 1 2016

Views: 127

As originally posted by Johnathan Smoke:

As the Season Changes, Opportunity Arises for First-Time Buyers

one house, four seasons

photos: Steve Dunwell/Getty Images
concept: Greg Chow

It’s that special time of the year: School is ready to begin, days are getting shorter, and the networks are eagerly trying to gear us up for football. And home sales are about to slow down—at least the real, actual sales and not the seasonally adjusted rates we’re used to following.

Seasonal adjustments help make data that are inherently seasonal easier to compare month to month. You can’t get a good picture of whether it’s a good or bad year by comparing typically slow January with typically busy July. But they also lull us into a false sense of reality that all months are similar, or merely go up and down based on the strength of the market.

The raw data tell us that real estate follows a clear seasonal pattern. Inventory peaks in the summer. Sales peak in the summer. Real estate Web traffic peaks in the summer. Notice the trend?

But each local market has its own cycle. The school calendar plays a big role since families with kids prefer to move while school is out. And not all schools start at the same time.

Weather also influences the cycle. Cold weather markets such as BostonMinneapolis, and Milwaukee start later. Does anyone remember how much snow Boston had to deal with last winter? Important note: You have to see the curb to have curb appeal.

Warm weather markets such as MiamiPhoenixSan Diego, and Tampa start earlier and demonstrate less seasonal variation overall.

And a certain amount of herd mentality influences the market peak, driven by years of history influencing the observation that there may be an optimal time to list that perfectly aligns with peak demand to command the highest price and to do so as quickly as possible. The peak inventory then influences the demand to jump into the market in the spring and summer, reinforcing the observation.

Looking at existing-home sales data at the national level over the past several years, June averages almost twice the volume of sales as January. But inventory doesn’t vary quite as much. The typical peak for inventory is in July, but the inventory in July is usually only about 25% higher than in December. The discrepancy between the variation in sales and the variation in inventory presents an opportunity for buyers.

When sales are slower due to the season, the age of inventory rises. We monitor the median days on market of active listings, which typically bottoms in June and peaks in the winter months of December and January.

As the age of inventory increases, buyers gain more leverage. That’s why prices are also seasonal, peaking each summer when demand is highest and the age of inventory is lowest.

So take heart, would-be buyers! If you can resist the herd and ignore the school calendar and the inconvenience of a winter move, you will face less competition in the off-season. And if you can find a home that fits your needs, you will have more bargaining power.

-Jonathan Smoke is the chief economist of realtor.com, where he analyzes real estate data and trends to develop market insights for the consumer.

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