When it comes to understanding the current state of home prices, the media can often leave us puzzled. The confusion arises from the utilization of different data types and the selective emphasis on specific aspects. In the realm of home prices, two primary methods are used for comparing prices over varying time periods: year-over-year (Y-O-Y) and month-over-month (M-O-M). Let's delve into each approach to gain clarity.
Year-over-Year (Y-O-Y):
Y-O-Y comparisons gauge the change in home prices during the same month or quarter of the preceding year. For instance, when analyzing Y-O-Y home prices for April 2023, we would compare them to the home prices of April 2022. These comparisons are valuable for assessing long-term trends since they encompass changes over a one-year period. They provide a comprehensive view of whether the market is generally appreciating or depreciating and aid in evaluating annual growth rates.
Month-over-Month (M-O-M):
M-O-M comparisons, on the other hand, measure the change in home prices from one month to the next. For example, when examining M-O-M home prices for April 2023, we would compare them to the prices of March 2023. These comparisons offer a more immediate snapshot of short-term movements and price fluctuations within a single month. They are instrumental in tracking immediate shifts in demand and supply, seasonal trends, and the impact of specific events on the housing market.
The crucial distinction between Y-O-Y and M-O-M comparisons lies in the time frame under evaluation. Each approach serves distinct purposes and possesses its own merits, depending on the specific analysis required.
Why is this Distinction Crucial Right Now?
In the coming months, we might witness home prices that are potentially lower than they were during the same period last year. April, May, and June of 2022 were exceptional months for home prices in the American housing market's history. However, the same months this year may not match up to those records. Consequently, the Y-O-Y comparison will likely indicate a depreciation in values. The data for April seems to suggest that this trend will continue in the months ahead, potentially leading to alarming headlines proclaiming falling home values. While these headlines will accurately reflect the Y-O-Y basis, they may mislead many consumers into believing that home values are currently spiraling downwards.
However, a closer examination of M-O-M home prices reveals that prices have actually been appreciating for several months. These M-O-M numbers more accurately depict the true state of home values. After a period of depreciation, it appears that we have reached a bottom and are now experiencing a rebound.
Consider the following example of M-O-M home price movements from the CoreLogic Home Price Insights report, spanning the last 16 months:
Why Does This Matter to You?
If you come across negative headlines regarding home prices, it is crucial to recognize that they may not provide a complete picture of the situation. In the upcoming months, when comparing prices to last year's peak, the Y-O-Y comparison may appear more negative. However, by focusing on the more immediate M-O-M trends, we can observe that home prices are, in fact, on the rise.
This presents a unique opportunity for potential homebuyers. Buying a home now means acquiring it at a discounted price compared to last year's peak and before prices regain further momentum. This strategy, commonly referred to as "buying at the bottom," can be advantageous.
If you have any inquiries regarding the current state of home prices, or if you're prepared to make a purchase before prices escalate, connect with Anthony Spitaleri and his dedicated team. Let's ensure you have the information and support you need.
