How Housing Appreciation Really Works

Westcoe Realtors, Riverside California…Let’s face it. We are a sound bite society. We want our news quick, right to the point, and if you can add a little humor, so much the better. Who knew the invention of the microwave would also want us to “nuke” everything else in our lives just as quickly. This expedience with information spills over to real estate as well, especially when it comes to housing appreciation rates. However, the trouble with this is as follows: do you want your information quick, or accurate…because things are never as easy as they seem.

Today, we give you a brief (remember, we get the sound bite time frame) primer on housing appreciation as we have observed it the past couple of years. Trust us…this will be very helpful if/when you go to sell your home.

First…any annual appreciation rate quoted by any source is simply that…an annual rate, not a monthly rate. You cannot take an annual rate, divide it by 12, and have a monthly appreciation rate. The real estate market does not work like that.

Secondly, if you don’t fully comprehend the paragraph above, then you will be doomed as a seller, and will be “zigging” when you should have been “zagging.” Let us explain.

As an example, let us assume a housing appreciation rate of 6% for 2014 (which is fairly accurate for Riverside last year). The key fact to know here is that this appreciation took place in about 7 months, not the 12 months in a calendar year. For us in the daily business of real estate, the months of approximately February -August showed all the growth, and the months of approximately September -January were flat. These months are not exact, but they are a pretty good estimate.

What does this mean to you as a homeowner? Two things, one of which is obvious, and one that is not.

The obvious thing is that the spring/summer months are certainly busier, and this leads to more sales, which leads to prices inching upwards, etc. This is not necessarily ground breaking news. There has almost always been a seasonality to real estate sales, with the exception of really, really hot markets…the kind of hot markets that ultimately lead to really bad, declining markets. But not to worry, we are not there at the moment.

However, the not-so-obvious thing to learn here is that this data does not mean you cannot sell your home in the September-January months. On the contrary, home sales are just fine that time of year…it’s just that you can’t s-t-r-e-t-c-h your list price like you can in the previous months. That’s all. When you, as a seller, are in those months, then it is imperative that you stop trying to continue to get “more” for your home than your neighbor, and instead realize that prices have gone up all they are going to, and you need to sell for the “same” as your neighbor (all things being equal).

Most people think housing sales slow in these later months, and yes…there is some slowing due to the holidays…but for the most part, sales slow a bit, and prices drop a bit because most sellers are still trying to get their “monthly” appreciation, instead of realizing that the appreciation is over for the year, and prices are now more stable. Therefore, some sellers simply list their home for sale in these months a little too high, hoping for the appreciation of the previous months to continue…and when it doesn’t, then housing prices drop back to the level of the spring months, and it looks like prices are falling. They are not…they are simply where they were at the end of the “selling” season.

The moral to this story is simple (here’s your sound bite). The spring/summer months will generally lead to housing price appreciation, but once the kids head back to school, then don’t get greedy as a seller. Take what you neighbor got because that is as good as it will get until around February of the next year.

Maybe this year will be different…but this is how it has been for the past couple of years.

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