The economy is growing, jobs are being created, and interest rates are still unimaginably low. Naturally, home sales are expected to rise. But the typical business activity of a REALTOR® will be falling as the autumn approaches.
Every year as the school year begins homes sales invariably decline in September from August. In the past 15 years, the average decline has been 16.4 percent. In October, home sales generally hold on. Then in November, home sales dip again, by 8 percent generally. December figures tend to match the low November figures. Because of the dark, cold weather spanning most of the country, January is not pretty for home sales, with an average plunge of 27 percent. Sunlight then flickers in February with a small rise. Much stronger activity then arises in March and April and into the summer months.
Despite the weaker business opportunities in the upcoming autumn and winter months, media headlines on home sales are likely to show an upturn and possible strengthening conditions based on NAR home sales releases. What gives?
An example of jobs in a beach town provides an easy comprehension. In Myrtle Beach, there tend to be about 15,000 more jobs in the summer months compared to the rest of the year. If during one summer the jobs grew by say only 6,000 then one would not say Myrtle Beach is doing well. Rather one will say there is a problem.
Most headline economic data, therefore, including GDP and unemployment rate, are stated as seasonally adjusted figures. The reason for the seasonal adjustments in the data is to better gauge an underlying economic trend of slight weakening or slight strengthening. For example, if a normal decline in raw home sales count in September is 16.4 percent, but this year September’s decline was say, 8 percent, then the housing market is somehow doing better. The seasonally adjusted home sales figure will then say as such. (Further the figure is multiplied by 12-months to get an annualized rate.) Again, all economic data essentially undergoes this process. And this seasonally adjusted data will get reported in the media and is what consumers will hear.
What this means is that your clients need to be reminded of these seasonal patterns. The media just may be reporting improving home sales throughout the upcoming autumn and winter. This does not mean a home-seller should be raising the listing price. Invariably, there are fewer home-buyers in autumn and winter.
Lawrence Yun is Chief Economist and Senior Vice President of Research at NAR. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1 million REALTOR® members.