Thursday, December 30, 2010

Seasonality, Home Sales and Home Prices

December 1, 2010

By Gregg Stratton, Research Economist
It is no surprise that there is a large level of seasonality in home sales data. Sales in existing homes tend to spike in warmer months, June through August, and reach their nadir in colder months, December through February. On average, homes sales are approximately 80 percent higher during their peak in August than they are during their January trough.

Median home prices are not devoid of seasonality, but possess much less of it than sales. Whereas the seasonality in sales is due to the fact that the majority of sales take place during warmer months, the seasonality in prices is due to the types of homes that are sold during warmer months versus colder months. Families with school-aged children typically prefer moving after the end of the school year and tend to buy larger homes. Therefore, a lower recorded home price in winter months does not necessarily indicate falling home values.

To illustrate this dynamic, quarterly unadjusted sales and price data is presented below for two cities with distinctly different climates, Atlanta and Minneapolis. While there is significantly more seasonal volatility in sales in Minneapolis versus Atlanta as is expected, there is only negligible difference in the seasonal volatility of median prices in the two cities.
This reinforces the point that price seasonality is caused by changes in mix rather than climate. In Atlanta, for example, sales of homes with four or more bedrooms comprise, on average, 45 percent of the total sales in August, while they only comprise 41 percent of the total in February.