Every year in late fall and early winter home prices fall, fewer homes are listed and the residential real estate market slows way down, especially in markets that are in the vast sections of the country that see real winter weather.
However, these seasonal factors can be eliminated from analysis by focusing on year-over-year numbers.
When looking at year-over-year price patterns, as is done in the following graph from Altos Research, interesting patterns emerge from the seasonal cycles.
Photo: Global Economic Intersection
Notice how much asking price has dipped each of the last three Decembers. We can’t see 2007 data in this graph, but it appears that these December 2008, 2009 and 2010 collapses may be a phenomenon associated with the deflating housing bubble. They may represent a desperation move by financially beleaguered home owners trying to attract a buyer going into the slowest time of the year for home sales.
Here are the important facts we can pull from this graph:
1. The successive December lows describe a declining slope averaging about 12% +/-2% a year.
2. After the early 2009 price rally, both selling prices and listing prices have declined in a way roughly parallel to the December bottom trend line.
3. The decline in asking prices for new listings is about 35% from December 2007 to December 2010.
4. The decline in sales prices over the same time period is only about 14%.
5. The difference between 35% listing price drop and 14% sales price decline can be taken a measure of increasing selling pressure.
The behaviour of the most desperate seller is indicating that the housing market has not yet reached market clearing prices. Most of the year asking prices for new listings have been below selling prices. This is in itself bearish in a weak market. The real weakness in housing is being revealed in the desperation moves of December.
As long as December is producing outsized drops in new listing prices the risk of a further collapse in housing remains. The double dip still has a risk of becoming a double plunge.