All About Data: PRICE TRENDS

Welcome to the third installment of our new series: All About Data!

This week we’re talking about Price Trends. Now that we have an understanding of why we use Median prices (click here for last week’s post!), let’s look at how we use Median Sales Price data to identify trends in the market. As you may already know, prices have been going up up up in the Portland Metro area. In the month of March 2020 the Median Sales Price was $425,000. 12 months later – in February 2021 – it had risen to $479,100, an increase of over 12%. 

Chart 1

Current Trends Compared to Historical Trends

If we look back a bit farther at prices from 2016-2020 (see chart 2 below) we see that each year prices tend to follow a similar pattern. They rise in the spring, peak in the summer, and drop slightly in the fall. This pattern is seasonal and is pretty consistent over time. But 2020 was anything but typical and that pattern did not play out. Instead, prices didn’t increase much at all during the beginning of the pandemic (and actually fell from March to April), but began rising again in June. And instead of peaking in the summer, they kept rising right through to October. When prices finally began to decrease a bit, it was a small decline (just $5,000 from October to December) and they almost immediately began to go up again once the Holidays were over.

Chart 2

Trends on the Heat Map

A Heat Map uses color to indicate trends in the market.

Using the legend below, you can see that darker blue represents less activity in the market and lower prices while darker orange represents the opposite: more activity and higher prices.

On our Think Heat Map we compare the Median Price to both the previous month (month-to-month) and that same month from the previous year (year-over-year). These two comparisons show us two very different things.

Median Price Compared to the Previous Month:

The month-to-month changes can move around quite a bit. These changes show the seasonal trends, as you can see from the variety of colors on that line of our Heat Map:

The relatively large jumps in prices from February to March last year (and January to February this year!) are reflected here in the dark orange color. These increases were relatively large for one month – both over 4%. But in April  prices corrected somewhat and fell about a quarter of a percent. From there, prices increased at varying rates through October, fell a bit in November and December, and started to climb again in January 2021. These subsequent drops in prices in April, November, and December are reflected in the slightly darker blue colors. If we only look at this data – how prices change compared to the previous month – we might conclude that while prices are increasing, they are also volatile and maybe even unpredictable. But that’s not actually the case right now and fortunately we have another metric that gives us a clearer understanding of price trends.

Median Price Compared to Last Year:

When we want to predict what will happen with prices in the future, it’s more useful to look farther back than just last month. To do this, we compare the Median Price to the previous year instead of the previous month. On our Heat Map we see that when compared to the previous year, prices are higher and have been going up at an increasing rate. In March 2020 the Median Price was 6.5% higher than the previous year, and in February 2021 it was 17.7% higher.

From Chart 1 we know that the Median Sales Price dropped from March to April from $425,000 to $424,000. This is quite unusual given the upward trajectory of prices over the last five years, but March of 2020 was when the pandemic started and real estate activity all but stopped. No one quite knew what the next days, weeks, or months would look like, so the market froze. We now know that the market would more than rebound from this, but if we only looked at that month-to-month comparison it would be a bit shocking.

So instead, we compare the Median Price from both March and April to the previous year. Here we see that in March the Median Price was up 6.5% compared to the previous year. And in April it was up 4.7% compared to the previous year, despite being lower than the previous month. We see this same phenomenon in November and December, where prices fell month-to-month, but were actually up over 10% and 12% compared to the previous year. What’s important here is the overarching trend, not the month-to-month fluctuations. The larger upward trend in prices is a better indicator of what’s going on in the market.

Looking Forward

How we use the data we have is as important as the data itself. And home price trends are one important factor to consider when making real estate decisions. No one can predict with 100% certainty what is going to happen in the future (just look at 2020!). But what we can do is provide you with clear and straightforward information to help make your decision-making process a little easier and hopefully a lot less stressful.

Check back next week when we tackle List Price!

How do sellers determine their list price an how can you tell if a list price is appropriate?

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