Media coverage about what’s happening with home prices needs to be clarified. Much of that is due to the type of data being used and what they choose to draw attention to. For home prices, two different methods are used to compare home prices over different time periods: year-over-year (Y-O-Y) and month-over-month (M-O-M). Here’s an explanation of each.
Year-over-Year (Y-O-Y):
- This comparison measures the change in home prices from the same month or quarter in the previous year. For example, if you’re comparing Y-O-Y home prices for June 2023, you would compare them to the home prices for June 2022.
- Y-O-Y comparisons focus on changes over one year, providing a more comprehensive view of long-term trends. They are usually helpful for evaluating annual growth rates and determining if the market is generally appreciating or depreciating.
Month-over-Month (M-O-M):
- This comparison measures the change in home prices from one month to the next. For instance, if you’re comparing M-O-M home prices for June 2023, you would compare them to the home prices for May 2023.
- Meanwhile, M-O-M comparisons analyze changes within a month, giving a more immediate snapshot of short-term movements and price fluctuations. They are often used to track immediate shifts in demand and supply, seasonal trends, or the impact of specific events on the housing market.
The key difference between Y-O-Y and M-O-M comparisons lies in the assessment time frame. Both approaches have their merits and serve different purposes depending on the specific analysis required.
Why Is This Distinction So Important Right Now?
We’re about to enter a few months when home prices could be lower than they were the same month last year. April, May, and June of 2022 were three of the best months for home prices in the history of the American housing market. Those same months this year might not measure up. That means the Y-O-Y comparison will probably show values are depreciating. The numbers for April seem to suggest that’s what we’ll see in the months ahead (see graph below):
That’ll generate troubling headlines that say home values are falling. That’ll be accurate on a Y-O-Y basis. And those headlines will lead many consumers to believe that home values are currently cascading downward.
However, on a closer look at M-O-M home prices, we can see prices have been appreciating for the last several months. Those M-O-M numbers more accurately reflect what’s happening with home values: after several months of depreciation, we’ve hit bottom and bounced back.
Here’s an example of M-O-M home price movements for the last 16 months from the CoreLogic Home Price Insights report (see graph below):
Why Does This Matter to You?
So, if you’re hearing negative headlines about home prices, remember they may not be painting the full picture. For the next few months, we’ll compare prices to last year’s record peak, which may make the Y-O-Y comparison more negative. But, if we look at the more immediate, M-O-M trends, home prices are actually on the way back up.
If you have questions about what’s happening with home prices or if you’re ready to buy before prices climb higher, let’s connect.
