The media coverage of home prices can be confusing due to the data used and the aspects they choose to highlight. Two different methods are employed to compare home prices over time: year-over-year (Y-O-Y) and month-over-month (M-O-M). Let's delve into each of them.

Year-over-Year (Y-O-Y):

• Y-O-Y comparison gauges the change in home prices from the same month or quarter in the previous year. To illustrate, if you're examining Y-O-Y home prices for April 2023, you would compare them to the home prices for April 2022.

• Y-O-Y comparisons emphasize changes over a one-year period, providing a broader perspective on long-term trends. They prove valuable for assessing annual growth rates and determining if the market is generally appreciating or depreciating.

Month-over-Month (M-O-M):

• M-O-M comparison measures the change in home prices from one month to the next. For example, if you're comparing M-O-M home prices for April 2023, you would compare them to the home prices for March 2023.

• On the other hand, M-O-M comparisons analyze changes within a single month, offering a more immediate snapshot of short-term movements and price fluctuations. They are often utilized to track immediate shifts in demand and supply, seasonal trends, or 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 has its own merits and serves different purposes depending on the specific analysis required.

Why is this distinction particularly significant at this moment?

As we approach the upcoming months, there is a possibility that home prices may be lower compared to the same months last year. Specifically, April, May, and June of 2022 were the most exceptionally strong months for home prices in the American housing market's history. However, this year's performance during those months may not match up to those record-breaking levels. Consequently, the year-over-year (Y-O-Y) comparison is likely to indicate a depreciation in values.

Why should you care about this information?

Well, it's essential to keep in mind that negative headlines about home prices may not present the complete picture. Over the next few months, we will be comparing prices to last year's peak, which might create a more negative impression in the year-over-year (Y-O-Y) comparison. However, when we examine the more immediate month-over-month (M-O-M) trends, we can observe that home prices are actually showing signs of an upward trajectory.

This situation presents an advantageous opportunity for prospective home buyers. By purchasing a home now, you can benefit from a discounted price compared to last year's rates, and you can do so before prices gather even more momentum. This strategy, known as "buying at the bottom," is favorable.

Lenders today are offering programs that can lower your interest rate for the first 2-3 years, which can get you into the home you want now and then allow time for interest rates to come back down for refinancing at the lower rate. These programs are called 2-1 Buydown or 3-2-1 Buydown. Under this program, the home buyer can ask the seller to pay an upfront fee to the lender on their behalf (it's usually built into the purchase price), who uses it to reduce the interest rate on the mortgage for the first two or three years. In the example of a 2-1 buydown, your mortgage rate will be 2 points lower in the first year and then 1 point lower in the second year, returning to the "full" mortgage rate in year three. Mortgage rates should come down within the next year, allowing a home buyer time to refinance at a lower mortgage rate for the life of the loan.

Bottom Line

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.