“Numerology” tries to find reality within various measurements of economic and real estate trends.
Buzz: Southern California homebuying is at the beginning of its annual “off” season with a high probability of price declines.
Source: My trusty spreadsheets peeked into month-to-month median selling-price data from closed Southern California transactions dating to 1988. The goal was to see how the calendar affects what house hunters will pay in the six-county region.
Fuzzy math: Seasonal variations play an important role in homebuying patterns in all sorts of economic conditions.
Topline
Let’s call September to January the off-season for Southern California homebuying. This is a period when the median selling price falls 80% of the time – or 28 times in the past 35 years.
Collectively, these five-month periods have an average price loss of 3%. The best off-season was a 4% gain in 2013. The worst was a 24% drop in 2009, in the middle of the Great Recession.
This is quite a reversal, historically speaking, from the seven months we’ve just finished. Let’s call that the “prime time” for home prices.
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Southern California prices have risen 91% of the time in the February-through-August period since 1988. That’s 32 increases out of 35.
The median price averaged 8% increases in these seven months over 35 years. The best prime time was a 21% jump in 2003. The worst was a 21% crash amid 2008’s financial meltdown.
Details
The main power behind this seasonality is sales activity.
In Southern California’s off-season – that’s September, October, November, December and January – 35% fewer homes are bought compared with the prime-time months.
Life cycles play a big role. For house hunters with children, these off-season months come after school starts – a key date on any family’s calendar. For sellers, unless one is pressed to move, who wants to be hassled with selling during the holidays and the market’s off-season?
But there’s industry tradition, too. The annual “spring rush” push motivates folks to transact.
No matter the cause, seasonal price swings – up and down – are meaningful events with the typical year pivoting in August. Look how these long-running patterns played out recently in Southern California.
2018: Prices rose 8% in the prime-time months then fell by 7% in the off-season months. Closings fell 44% between the two seasons as jumpy mortgage rates upset house-hunting.
2019: 7% prime-time gain followed by 1% off-season slip. Closings dipped 33%. It was sort of a normal year.
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2020: 13% prime-time surge vs. 0.3% off-season dip. Sales were down only 8% – the smallest dip since 1988 – amid pandemic lockdowns.
2021: 14% prime-time jump vs. a rare 1% off-season gain as the economy reopened. Closings dipped 35%.
2022: 5% prime-time gain vs. 7% off-season slip. Sales tumbled 54% – the largest seasonal dip on record – as record-setting mortgage-rate increases iced the market.
And this year started with an above-average 10% prime-time advance. So, what will the off-season bring?
Bottom line
Context to homebuying movements is key.
Watch the next five months knowing Southern California history points to a 3% price dip through January. If you’re in the market, does history suggest a less aggressive approach this autumn – from a buyer or a seller?
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Of course, there’s the lure of eyeballing the market with the more sedate year-over-year price tracking. Yes, it helps eliminate the seasonal swings, but it also trims the ability to catch shorter-term movements.
Recent homebuying gyrations added up to a below-average 2% gain in Southern California’s median price over the 12 months ended in August. That was a rate-hike-induced cooling from a 6% increase in the previous 12-month period.
Statistically speaking, seasonality is a fairly predictable part of often mercurial homebuying cycles. That knowledge could present opportunities for buyers or sellers willing to play the transaction game in this purportedly unpopular off-season.
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at [email protected]
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